Filed March 7, 2002
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001 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 No.)
6801 Rockledge Drive, Bethesda, Maryland 20817-1877 (301/897-6000)
(Address and telephone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
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Common Stock, $1 par value New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
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, and (2) has been subject to such filing requirements
for the past 90 days. Yes [x] No [ ]
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 or Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [x]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. Approximately $23.2 billion as of January 31, 2002.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. Common Stock, $1 par value,
443,385,919 shares outstanding as of January 31, 2002.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Lockheed Martin Corporation's 2002 Definitive Proxy Statement are
incorporated by reference in Part III of this Form 10-K.
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PART I
ITEM 1 BUSINESS
General
Lockheed Martin Corporation principally researches, designs, develops,
manufactures, integrates and operates advanced technology systems, products and
services. We serve customers in both domestic and international defense and
commercial markets, with our principal customers being agencies of the U.S.
Government. Lockheed Martin was formed in March 1995 by combining the businesses
of Martin Marietta Corporation and Lockheed Corporation. We are a Maryland
corporation.
Throughout this Form 10-K, we incorporate by reference information from parts of
other documents filed with the Securities and Exchange Commission (SEC). The SEC
allows us to disclose important information by referring to it in this manner
and you should review such information.
Our principal executive offices are located at 6801 Rockledge Drive, Bethesda,
Maryland 20817. Our telephone number is (301) 897-6000. Our home page on the
Internet is www.lockheedmartin.com. You can learn more about us by reviewing our
SEC filings on our web site. The SEC also maintains a web site at www.sec.gov
that contains reports, proxy statements and other information regarding SEC
registrants, including Lockheed Martin. We make our web site content available
for information purposes only. It should not be relied upon for investment
purposes, nor is it incorporated by reference into this Form 10-K.
Business Segments
We operate in four principal business segments: Systems Integration, Space
Systems, Aeronautics and Technology Services. We report all other activities of
the Corporation as part of the Corporate and Other segment or as discontinued
operations. Following is a brief description of the activities of each business
segment:
Systems Integration - Engaged in the design, development, integration and
production of high performance electronic systems for undersea, shipboard, land
and airborne applications. Major product lines include missiles and fire control
systems; air and theater missile defense systems; surface ship and submarine
combat systems; anti-submarine and undersea warfare systems; avionics and ground
combat vehicle integration; platform integration systems; command, control,
communications, computers and intelligence (C4I) systems for naval, airborne and
ground applications; surveillance and reconnaissance systems; air traffic
control systems; and postal automation systems.
Space Systems - Engaged in the design, development, engineering and production
of commercial and military space systems, including those systems that perform
intelligence, surveillance, and reconnaissance. Major product lines include
spacecraft, space launch vehicles and space systems; their supporting ground
systems and services; and strategic fleet ballistic missiles. In addition, Space
Systems has investments in joint ventures that are principally engaged in
businesses that complement and enhance other activities of the segment.
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Aeronautics - Engaged in the design, research and development, production and
support of combat and air mobility aircraft, surveillance/command systems,
reconnaissance systems, platform systems integration and advanced development
programs. Major products and programs include the F-35 (Joint Strike Fighter),
the F-16 multi-role fighter, the F-22 air-dominance fighter, the C-130J tactical
airlift aircraft, the F-2 combat aircraft and support for the C-5, F-117 and U2
aircraft.
Technology Services - Provides a wide array of information management,
engineering, scientific and logistic services to federal agencies and other
customers. Major product lines include e-commerce, enterprise information
services, software modernization, information assurance and data center
management for the U.S. Department of Defense ("DoD"), civil government agencies
and commercial customers; engineering, science and information services for
NASA; aircraft and engine maintenance and modification services; management,
operation, maintenance, training, and logistics support for military and
civilian systems; launch, mission, and analysis services for military and
commercial satellites; and research, development, engineering and science in
support of nuclear weapons stewardship and naval reactor programs.
Corporate and Other - Includes our properties line of business, investments in
Intelsat, Ltd. (Intelsat), Inmarsat Ventures plc (Inmarsat), New Skies
Satellites, N.V. (New Skies) and other global telecommunications investments, as
well as various other corporate activities.
We previously reported Global Telecommunications as a separate segment. On
December 7, 2001, we announced plans to exit the Global Telecommunications
services business. In connection with that action, we plan to sell certain of
the Lockheed Martin Global Telecommunications (LMGT) businesses and realign
other LMGT businesses and telecommunications equity investments to other
Lockheed Martin business units. At December 31, 2001, the LMGT businesses held
for sale included Satellite Services (World Systems, Mobile Communications and
Lockheed Martin Intersputnik) and COMSAT - International (formerly Enterprise
Solutions - International). These businesses are now reported as discontinued
operations. The sale of the Mobile Communications business was completed on
January 11, 2002.
The LMGT businesses retained by the Corporation have been realigned as follows:
o The Systems & Technology line of business and COMSAT General
telecommunications business have been realigned within the Space Systems
segment.
o Enterprise Solutions - U.S., a commercial information technology business,
has been realigned within the Technology Services segment.
o LMGT's investments in Intelsat, Inmarsat, New Skies and other satellite
ventures have been realigned within the Corporate and Other segment.
In addition, the Corporation completed the sale of Lockheed Martin IMS
Corporation (IMS), a wholly-owned subsidiary, for $825 million in cash on
August 24, 2001. IMS previously was reported as part of the Corporate and Other
segment. The results of IMS's operations, as well as the gain on sale, have been
reclassified to discontinued operations in accordance with Statement of
Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets."
Comparative segment revenues, profits and related financial information for
2001, 2000, and 1999 are provided in the table entitled Selected Financial Data
by Business Segment in Note 17-
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Information on Industry Segments and Major Customers on page 72 of this Form
10-K. All historical financial information has been reclassified to be
consistent with the current segment presentation.
Systems Integration
Our Systems Integration segment has several operating units that mainly are
engaged in U.S. defense work. Systems Integration's core businesses are:
o Naval electronics and surveillance systems
o Missiles and fire control systems
o Command, control, communications, computers and intelligence (C4I) systems
o Platform integration, business solutions and material handling systems.
During 2001, System Integration's net sales represented 38% of our total net
sales.
Naval Electronics & Surveillance Systems provides ship systems integration
services, surface ship and submarine combat systems, sensors and missile
launching systems. Missiles and Fire Control produces air and missile defense
systems, tactical battlefield missiles, electro-optical systems, fire control
systems and precision guided weapons and munitions. The C4I businesses provide
information superiority systems; federal information management solutions such
as automated fingerprint identification systems; and simulation and training
systems and services. C4I also encompasses Air Traffic Management, which
develops and integrates advanced air traffic control systems. The platform
integration business integrates mission-specific combat suites and other systems
for anti-submarine warfare, electronic warfare and surveillance and
reconnaissance applications. Systems Integration also develops and integrates
postal automation and material handling systems, and provides information
technology solutions for government and commercial business customers.
System Integration serves as a lead systems integrator. It's major products
include surface ship and submarine combat systems; anti-submarine and undersea
warfare systems; land-, sea- and air-based radars; air and theater missile
defense systems; anti-armor, air-to-surface and surface-to-surface missiles;
electro-optical and fire control systems; avionics and ground combat vehicle
integration; command and control systems for naval, airborne and ground
applications; simulation and training systems; logistics management; government
and commercial information technology systems; intelligence, surveillance and
reconnaissance systems; air traffic control systems; and postal automation and
material handling systems.
System Integration's major business orders during 2001 included winning the U.S.
Air Force's Advanced Targeting Pod program to provide advanced target detection
and identification capabilities for U.S. Air Force and Air National Guard F-16
crews, receiving a U.S. Air Force contract to equip its fleet of A-10 aircraft
with a new precision attack capability, winning a U.S. Army competition to
produce field and laser-based training systems for live force-on-force training,
and winning multiple U.S. Postal Service contracts to further speed automated
mail processing and improve the machine recognition of handwritten addresses.
Lockheed Martin is leading a team competitively selected by the U.S. Federal
Aviation Administration (FAA) to provide modern, integrated systems that will
monitor and control U.S. and international commercial aircraft operating within
approximately 23 million square miles of oceanic airspace. Systems Integration
also was awarded a 10-year contract to provide information technology
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services for the Office of the Secretary of Defense at the Pentagon. In
addition, we were one of two companies selected by the U.S. Air Force to
participate in the advanced development phase of the Small Diameter Bomb (SDB)
program, aimed at fielding a precision-guided munition that will enable U.S.
fighters and bombers to attack more targets with fewer planes.
Furthering U.S. Government priorities of enhanced international cooperation and
interoperability, the MEADS International joint venture - whose participants
include Lockheed Martin, Alenia Marconi Systems of Italy, European Aeronautic
Defence and Space (EADS) and LFK - Lenkflugkorpersysteme GmbH of Germany -
received a NATO contract for risk reduction effort on the Medium Extended Air
Defense System (MEADS). MEADS is being developed to provide next-generation air
and missile defense capabilities for the United States and its allies. In
another international order, we were selected to upgrade 10 maritime patrol
aircraft under the Royal Netherlands Navy's P-3C Capabilities Upgrade Program.
Systems Integration received follow-on orders in 2001 involving a number of
established programs. These include the AEGIS combat system for the U.S. Navy;
production of Army Tactical Missile System missiles for the United States and
Republic of Korea; Multiple Launch Rocket System rockets for Egypt; and mobile
radar systems for Korea, Latvia and Estonia.
Systems Integration is extending its skills and technologies into adjacent
growth markets. For example, in 2001, we opened a Commercial Flight Training
Center in Orlando with FAA certified simulators and delivered a truck driver
trainer system - originally developed for the military - to a commercial
customer. We also expanded our military air traffic control radar business into
the adjacent civil government market, receiving a contract to build three
terminal airport surveillance radars and provide a fourth secondary surveillance
radar for an international customer.
Major program milestones achieved during 2001 include the successful completion
of a rigorous development test program for the Patriot Advanced Capability-3
(PAC-3) Missile (now in production), commencement of low-rate initial production
of the Joint Air-to-Surface Standoff Missile, and the FAA's introduction
of a new system that automatically detects potential aircraft-to-aircraft
conflicts. We delivered, ahead of schedule, the first of six new Light Airborne
Multi-Purpose System (LAMPS) Mk III SH-60B helicopters for the Spanish Navy. We
shipped the 100th SQQ-89 undersea warfare system to the U.S. Navy as the
production program continued into its 15th year, and marked delivery of the
500th Consolidated Automated Support System to the U.S. Navy. We also launched
the U.S. Navy's newest oceanographic research vessel, the Kilo Moana, the first
ship for which a systems integrator, rather than a shipyard, served as prime
contractor. We completed technical handover of the United Kingdom's New En Route
Centre, which will increase air traffic capacity over southern England and
Wales; conducted a successful preliminary design review for the U.S. Navy's new
Remote Minehunting System; and received an "exceptional" rating from the U.S.
Air Force for our team's management of the Integrated Space Command and Control
program during its critical start-up period.
The segment is heavily dependent on both military and civilian agencies as
customers. In 2001, U.S. Government customers accounted for approximately 77% of
the segment's total net sales.
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Space Systems
The Lockheed Martin Space Systems Company, an operating unit of the Corporation,
is headquartered in Denver, Colorado. Space Systems' principal business areas
are:
o Astronautics Operations
o International Launch Services
o Missiles and Space Operations
o Commercial Space Systems
o Management & Data Systems
o Michoud Operations
o Special Programs
A portion of the segment's activities involves classified programs for the U.S.
Government. At December 31, 2001, Space System's net sales represented
approximately 28% of our total net sales.
Astronautics Operations designs, develops, manufactures and integrates advanced
technology systems for space and defense. Principal products include classified
activities and the Titan and Atlas families of launch vehicles. International
Launch Services (ILS) markets the Atlas and Proton launch vehicles.
Missiles & Space Operations designs, develops, manufactures and integrates
strategic missiles and spacecraft for communications, Earth observation,
scientific and navigation missions for military and civilian government agencies
and commercial customers. Principal products include the Trident II
submarine-launched fleet ballistic missile, the Space-Based Infrared System-
High (SBIRS-H) program, and defense communications satellites such as MILSTAR
and Advanced Extremely High Frequency (AEHF) satellites.
Commercial Space Systems, located in Newtown, Pennsylvania, designs, builds,
markets and operates turnkey satellite systems for the space-based
telecommunications market, and provides space-based solutions for other
applications.
Management & Data Systems (M&DS) is a leader in technically advanced system
engineering, information technology, sensor processing, and communications
systems. This unit provides complex, innovative solutions for intelligence,
surveillance, and reconnaissance programs for diverse government, commercial and
international customers.
Michoud Operations manufactures the external tank for the Space Shuttle and
NASA. This unit also designs, develops and manufactures, for government and
commercial customers, large aluminum and composite structures (including fuel
tanks for space vehicles), cryogenic propellant feed systems and thermal
protection systems for cryogenic structures. In March 2001, NASA announced that
the X-33 program, a sub-scale technology demonstrator of a reusable launch
vehicle, would not receive additional Space Launch Initiative funds. As a
result, the current X-33 program will come to completion when the cooperative
agreement between NASA and Lockheed Martin expires in March of 2002.
Special Programs is a program management organization formed to assist
classified customers with the management of Lockheed Martin contracts.
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United Space Alliance, LLC, which we jointly own on a 50% basis with The Boeing
Company, is responsible for the day-to-day operation and management of the Space
Shuttle fleet for NASA. It also performs the modification, testing and checkout
operations required to prepare Space Shuttles for launch.
We also own 46% of Space Imaging LLC, a supplier of satellite images, satellite
imaging access, and related products and services.
The segment is heavily dependent on both military and civilian agencies of the
U.S. Government as customers. In 2001, U.S. Government customers accounted for
87% of the segment's net sales.
Aeronautics
Aeronautics' major lines of business are combat aircraft, air mobility, and
aeronautical research and development. Aeronautics has operations in Fort Worth,
Texas; Marietta, Georgia; Palmdale, California; and plants in Clarksburg, West
Virginia; Johnstown, Pennsylvania; Meridian, Mississippi; and Pinellas, Florida.
Portions of the segment's activities involve classified programs for the U.S.
Government. In 2001, Aeronautics' net sales represented 22% of our total net
sales.
Aeronautics designs, develops, integrates, produces and supports advanced
military fighter and airlift aircraft, and related technologies. Aeronautics is
involved in numerous large defense programs, including:
o F-22 air-dominance fighter - with significantly improved capabilities over
current U.S. Air Force aircraft
o F-16 multi-role fighter - presently the world's premier, low-cost,
multi-role fighter
o F-35 (Joint Strike Fighter)
o C-130J transport - latest generation of C-130 Hercules tactical transport
aircraft.
Aeronautics is the team leader for the F-22 Raptor air-dominance fighter
aircraft program. In 2001, the Defense Acquisition Board (DAB) unanimously
recommended proceeding with F-22 low-rate initial production, and
Aeronautics received contract authorization in September 2001 for Production Lot
1 (10 aircraft). Aeronautics received contract authorization for F-22 Production
Lot 2 (13 aircraft) on January 31, 2002.
Aeronautics is also the prime contractor on the F-16 Fighting Falcon tactical
fighter aircraft and continues to provide upgrades for the U.S. Air Force and
our international customers. Since the program's inception, over 4,300 of these
aircraft have been ordered. In 2001, major F-16 orders included 52 aircraft for
Israel and 10 aircraft for Greece. F-16 deliveries totaled 24 aircraft in 2001.
For the next generation Joint Strike Fighter (JSF), various branches of the U.S.
military, the United Kingdom and other countries' militaries are working
together on a set of requirements that should allow a near-common design for
this aircraft. In 2001, we completed the Concept Demonstration Program (CDP) and
concluded flight demos with all three variants meeting or exceeding all required
test points. In October 2001, Aeronautics was awarded the F-35 (JSF) System
Development and Demonstration (SDD) contract and recorded an order of
nearly $19 billion. The SDD contract has a performance period of 10.5 years.
During the SDD phase, the
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Lockheed Martin-led team will produce 22 aircraft (14 flying test aircraft and 8
ground test aircraft). Envisioned to be a cornerstone of future defense
capability for the U.S. and its allied partners, plans call for more than 3,000
aircraft to be produced over the life of the program. Low-rate initial
production is scheduled to begin in the 2005-2006 timeframe under a series of
separate contracts and will continue through 2011. High rate production is
currently planned to begin after low-rate initial production in the 2012
timeframe. We expect that a program of this size and nature will receive a high
level of focus and attention from the Congress and Administration as it
progresses through development leading up to long-term production decisions
beyond the SDD phase. While the F-35 appears to be a high priority for the U.S.
Government, there is no assurance that future required funding will be approved
or that we will be awarded a long-term production contract beyond the SDD phase.
The C-130J is an advanced technology tactical transport aircraft offering
improved performance and reliability with reduced operating and support cost
compared to prior C-130 models. The J model incorporates state-of-the-art
cockpit and avionics, a more powerful and efficient propulsion system and
numerous manufacturing innovations into a proven, mission-tested airframe. In
2001, we completed testing of several new C-130J aircraft capabilities and
versions, including WC-130J Hurricane Hunters, advanced avionics software and
the KC-130J refueling aircraft for the U.S. Marine Corps (USMC), and delivered
15 C-130J aircraft in four configurations to three customers. In 2001, orders
were received for two, fiscal-year 2002 USMC KC-130J aircraft. Additionally,
funding for five U.S. Air Force C-130J-30 aircraft was approved in the
fiscal-year 2002 U.S. Government budget.
Aeronautics also is involved in advance development activities and other
programs, such as the joint Japan/U.S. production of the F-2 combat aircraft. We
provide sustaining engineering, modifications and upgrades for existing
aircraft, including the F-16, the U2 reconnaissance aircraft, earlier model
C-130s and C-5s, and the F-117 Total Systems Performance Responsibility (TSPR)
program with the U.S. Air Force, a logistics support system that includes the
role of sustainment, integration, modification, depot support and system
upgrades.
The segment is dependent on the U.S. military and international governments as
customers. In 2001, U.S. Government customers accounted for approximately 64% of
the segment's net sales.
Technology Services
The Technology Services segment provides a wide array of information management,
engineering, scientific and logistic services to government agencies and
commercial customers. Principal customers include the DoD, the U.S. Department
of Energy (DoE), NASA and other agencies of the federal government. Technology
Services has seven operating units:
o Information Technology
o Aircraft and Logistics Centers
o Space Operations
o Systems Management
o Technical Operations
o Knolls Atomic Power Laboratory
o Sandia National Laboratories
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In 2001, Technology Services' net sales represented 12% of our total net sales.
Also, Technology Services performs work under contracts with the DoE (known as
Government-Owned, Contractor-Operated or GOCO) for which it received a fee for
management services. Only the management fee is recorded in Technology Services'
net sales.
Technology Services received several new or extensions of existing business
awards in 2001. Work scope expansion on the Network Infrastructure Services
Agency - Pentagon contract enhances Technology Services' DoD information
technology (IT) presence with an increased role in the Pentagon's network
renovation project. Other significant IT awards include the extension of the
information resource management contract supporting 10,000 end-users at the
DoE's Hanford facility in Richland, Washington and a new contract to support the
Federal Deposit Insurance Corporation's information technology infrastructure
from network performance management to desktops and peripherals. Innovative
partnering solutions helped Technology Services receive a Flexible Acquisition
Sustainment Tool (FAST) award, which is the U.S. Air Force's principal contract
vehicle for obtaining quick-response support for critical systems in the field.
Customer satisfaction with Technology Services' logistics solutions at the 11
sites of the Tethered Aerostat Radar System Operations & Maintenance program
made possible successful retention of this border-security program. Technology
Services also retained a major classified support contract as a direct result of
customer satisfaction with past performance.
As part of its strategic focus on the government information technology market,
Technology Services acquired OAO Corporation on December 7, 2001. OAO, whose
programs provide managed infrastructure services, e-government, information
assurance, and other information services to a wide range of government
customers, was integrated (along with LMGT's commercial IT unit, Enterprise
Solutions - US) into Technology Services' existing Information Support Services
business to create Lockheed Martin Information Technology.
Information Technology provides a full spectrum of IT support to federal, state,
and local government agencies and select commercial customers. Principal
customers include the U.S. Social Security Administration, Patent and Trademark
Office, the Environmental Protection Agency (EPA), DoD, DoE, NASA, and the
Departments of Justice and Health and Human Services. Specific types of
information technology support include: software design, development, and
maintenance; e-commerce; telecommunications; supercomputing; network management;
data center operations; managed infrastructure services; information technology
outsourcing; and information security. Much of the work performed by Information
Technology is contracted through task order vehicles or a Government Services
Administration schedule. The integration of LMGT's Enterprise Solutions-U.S.
business into Information Technology introduces commercial customers to the unit
and provides an opportunity to expand federal service offerings to the
commercial market.
Aircraft and Logistics Centers (ALC) provides aircraft maintenance and
modification services and contractor logistics support for defense and
commercial customers around the world. ALC provides depot-level and field
maintenance services, engine maintenance and overhaul services, customer site
support, and supply chain management. The unit also manages international
aircraft depots in Saudi Arabia and Argentina and a joint venture in China for
commercial aircraft maintenance engineering. ALC is part of Lockheed Martin's
winning F-35 (JSF) team and will provide contractor logistic support services to
the program.
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Space Operations provides engineering, science and information services at eight
NASA centers and other government and commercial locations across the country.
These services include: mission operations; flight hardware and payload
development and integration; propulsion testing; engineering and technical
support for life sciences; software design, development, and process control;
and information technology engineering design and support. Space Operations'
major revenue generator is the Consolidated Space Operations Contract, which is
a major initiative to re-engineer and commercialize NASA's space operations
architecture to create increased efficiencies in operation, maintenance and
sustaining engineering.
Systems Management provides a wide range of professional and technical support
services for the defense and energy markets. Services for the DoD include
operation, maintenance, logistics, and engineering services for weapons systems
and training ranges; instructor services and flight-simulator engineering
support for aircrew training; and assembly, installation, integration, upgrade
and repair services for computer, communications, command and control, radar,
target, and surveillance systems. Energy related services include management of
Lockheed Martin's one-third interest in the joint venture that is performing the
Atomic Weapons Establishment (AWE) program for the United Kingdom. Systems
Management also provides support for the Rapid Response for Critical Systems
Requirements program and FAST program to ensure that critical defense systems
maintain full functionality.
Technical Operations performs space and space-related services for DoD and other
federal agencies and commercial customers. These services include requirements
analysis, architecture trade studies, systems integration, operation and
maintenance, sustainment, system enhancement, and life-cycle support. They are
performed in the functional areas of space launches, space missions and
information analysis.
Knolls Atomic Power Laboratory designs nuclear reactors for the U.S. Navy. It
also supports the existing fleet of nuclear powered ships and trains the Navy
personnel who operate those ships. Technology Services is in the second year of
a ten-year, GOCO contract.
Sandia National Laboratories supports the stewardship of the U.S. nuclear weapon
stockpile, developing sophisticated research and technology in the areas of
engineering sciences, materials, and processes; pulsed power; microelectronics
and photonics; and computational and information sciences. Technology Services
is in the ninth year of a ten-year, GOCO contract.
The segment is heavily dependent on both military and civilian agencies as
customers. In 2001, U.S. Government customers accounted for approximately 82% of
the segment's total net sales.
Corporate and Other
All other operations and investments of the Corporation, exclusive of those
reported as discontinued operations, comprise the Corporate and Other segment.
This segment includes:
o Satellite venture investments
o Investment holdings and real estate
o Research and development efforts
o Shared corporate services
In 2001, Corporate and Other's net sales were not significant.
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Corporate and Other now includes investments in various satellite ventures
previously reported as part of Global Telecommunications. These investments (and
our percentage of ownership) are: Intelsat (24%); Inmarsat (14%); New Skies
(14%); Lockheed Martin Intersputnik, Ltd. (100%); Americom Asia-Pacific (50%);
Astrolink International, LLC (31%); and ACeS International Ltd. (33%). In
addition, we own approximately 14% of Loral Space & Communications, Ltd. For
additional information regarding these investment holdings, see Note 9 -
Investments in Equity Securities on page 63 of this Form 10-K.
The Corporation is continuing to explore the sale of various investment holdings
and surplus real estate. If the Corporation were to decide to sell any
investment holdings or surplus real estate, the financial gains that may result,
if any, would be recorded when the transactions are consummated and losses, if
any, would be recorded when estimable. Management cannot predict the timing of
these potential divestitures, the amount of proceeds that may ultimately be
realized or whether any or all of the potential transactions will take place.
We run research laboratories, own real estate and conduct other miscellaneous
activities in the Corporate and Other segment. The Corporate and Other segment
includes corporate shared services which supports all of our business areas,
Enterprise Information Systems (EIS) which serves Lockheed Martin's internal
information technology needs, and the Corporation's approximately 20% ownership
interest in Exostar(TM), a business-to-business exchange for the defense and
aerospace industry.
Patents
We own numerous patents and patent applications, some of which, together with
licenses under patents owned by others, are utilized in our operations. Although
these patents and licenses are, in the aggregate, important to the operation of
our business, no existing patent, license or other similar intellectual property
right is of such importance that its loss or termination would, in the opinion
of management, materially affect our business.
Raw Materials and Seasonality
Although certain aspects of our business require relatively scarce raw
materials, we have not experienced difficulty in our ability to obtain raw
materials and other supplies needed in our manufacturing processes, nor do we
expect this to be an issue in the future. No material portion of our business is
considered to be seasonal, although our revenues in the second half of the year
have generally exceeded revenues in the first six months in recent years. The
timing of government awards, the availability of government funding, product
deliveries and customer acceptance are among the factors that may affect the
periods in which revenues are recorded.
Competition and Risk
We compete with numerous other contractors on the basis of price, as well as
technical and managerial capability. Our ability to successfully compete for and
retain business is highly dependent on technical excellence, management
proficiency, strategic alliances, cost-effective performance and the ability to
recruit and retain key personnel.
In recent years, domestic and worldwide political and economic developments have
significantly affected the markets for defense and advanced technology systems,
products and services. For a discussion of these and other risks affecting the
defense industry and the commercial markets that we serve, see Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Industry Considerations on page 28 through page 31 of this Form 10-K.
Competition in many of our markets has intensified.
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Consolidation among U.S. defense, space and aerospace companies has resulted in
a reduction of the number of principal prime contractors for the DoD and NASA.
As a result of this consolidation, we frequently partner on various programs
with our major suppliers, some of which are, from time to time, our competitors
on other programs.
U.S. Government programs are also subject to uncertain future funding levels,
which can result in the extension or termination of programs. Our business is
also highly sensitive to changes in national and international priorities and
U.S. Government budgets.
The President has announced plans to seek increased funding for major
acquisition programs of the DoD and for homeland security. After over a decade
of downward trends, the current defense budget outlook is one of growth. There
can be no assurance, however, that Congress will approve increased defense
funding, that any increased funding will be available for hardware or services
procurements or increased research and development spending, or that we would
win any contracts funded by any budgetary increases.
In 2001, approximately 78% of our net sales were made to the U.S. Government,
either as a prime contractor or as a subcontractor; approximately 16% of our net
sales were made to foreign governments; and approximately 6% of our net sales
were made to commercial customers (mainly launch services, satellites and
information technology services). Accordingly, a substantial portion of our
sales are subject to inherent risks, including uncertainty of economic
conditions, changes in government policies and requirements that may reflect
rapidly changing military and political developments and the availability of
funds. Other characteristics of the industry are complexity of designs, the
difficulty of forecasting costs and schedules when bidding on developmental and
highly sophisticated technical work, and the rapidity with which product lines
become obsolete due to technological advances and other factors characteristic
of the industry.
At December 31, 2001, our backlog included both cost reimbursement and fixed
price contracts. Cost reimbursement contracts generally have lower profit
margins than fixed price contracts. Production contracts are mainly fixed-price
contracts, and developmental contracts are generally cost reimbursement
contracts. Earnings may vary materially depending on the types of long-term
government contracts undertaken, the costs incurred in their performance, the
achievement of other performance objectives and the stage of performance at
which the right to receive fees, particularly under incentive and award fee
contracts, is finally determined.
Our international business (mainly foreign military sales to various governments
in Europe, Asia and Middle East) tends to have more risk than our domestic
business due to the greater potential for changes in foreign economic and
political environments. Our business is also highly sensitive to changes in
foreign national priorities and government budgets. International transactions
frequently involve increased financial and legal risks arising from stringent
contractual terms and conditions and the widely differing legal systems and
customs in foreign countries. The Corporation's contracts, however, generally
are denominated in U.S. dollars.
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Government Contracts and Regulation
Our businesses are heavily regulated in most of our markets. We deal with
numerous U.S. Government agencies and entities, including all of the branches of
the U.S. military, NASA and the DoE. Similar government authorities exist in our
international markets.
The U.S. Government, and other governments, may terminate any of our government
contracts and, in general, subcontracts, at their convenience as well as for
default based on performance. If any of our government contracts were to be
terminated for convenience, we generally would be entitled to receive payment
for work completed and allowable termination or cancellation costs.
Upon termination for convenience of a fixed-price type contract, we normally are
entitled, to the extent of available funding, to receive the purchase price for
delivered items, reimbursement for allowable costs for work-in-process and an
allowance for profit on the contract or adjustment for loss if completion of
performance would have resulted in a loss. Upon termination for convenience of a
cost reimbursement contract, we normally are entitled, to the extent of
available funding, to reimbursement of allowable costs plus a portion of the
fee. The amount of the fee recovered, if any, is related to the portion of the
work accomplished prior to termination and is determined by negotiation.
U.S. Government contracts also are conditioned upon the continuing availability
of Congressional appropriations. Long-term government contracts and related
orders are subject to cancellation if appropriations for subsequent performance
periods become unavailable. Congress usually appropriates funds on a fiscal-year
basis even though contract performance may extend over many years. Consequently,
at the outset of a program, the contract is usually partially funded, and
Congress annually determines if additional funds are to be appropriated to the
contract.
A portion of our business is classified by the government and cannot be
specifically described. The operating results of these classified programs are
included in our consolidated financial statements. The business risks associated
with classified programs, as a general matter, do not differ materially from
those of our other government programs and products.
Sales of our products and services internationally are subject to local
government regulations and procurement policies and practices (including
regulations relating to import-export control, investments, exchange controls
and repatriation of earnings) as well as to varying currency, political and
economic risks. Sales of military products are affected by defense budgets (both
in the U.S. and abroad) and U.S. foreign policy. The policies of some foreign
customers require offset programs (in-country purchases, manufacturing and
financial support projects required as a condition to obtaining orders) or other
arrangements. In foreign sales, we face substantial competition from domestic
manufacturers and other foreign manufacturers (whose governments sometimes
provide research and development assistance, marketing subsidies and other
assistance for their commercial products).
We have investments in several satellite or telecommunications ventures, which
are subject to regulation by the Federal Communications Commission (FCC) and
other international telecommunications regulatory authorities. FCC and other
regulatory decisions have had and are likely to continue to have an impact on
the value of those investments. In 2000, Congress passed the ORBIT Act (the
Open-market Reorganization for the Betterment of International
Telecommunications Act) that, among other measures, establishes deadlines for
completion of initial public
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offerings by Intelsat and Inmarsat, as well as specific criteria for determining
whether the privatizations of those entities are pro-competitive. If those
criteria are not met, the FCC may limit access by U.S. users to the satellite
capacity of the privatized entities for certain services. If this were to occur,
the value of the Corporation's investment in those entities could be adversely
affected.
Backlog
At December 31, 2001, our total negotiated backlog was $71.3 billion compared
with $55.1 billion at the end of 2000. The total negotiated backlog of each of
our segments at December 31, 2001, was as follows: Systems Integration - $17
billion; Space Systems - $13 billion; Aeronautics - $36.2 billion; and
Technology Services - $5.1 billion. Of our total 2001 year-end backlog,
approximately $53.6 billion, or 75%, is not expected to be filled within one
year.
These amounts include both funded backlog (unfilled firm orders for our products
for which funding has been both authorized and appropriated by the customer -
Congress in the case of U.S. Government agencies) and unfunded backlog (firm
orders for which funding has not been appropriated). Funded backlog was $38.2
billion at December 31, 2001. For additional information regarding the
Corporation's backlog, see "Backlog" in Management's Discussion and Analysis of
Results of Operations and Financial Condition on page 42 through 43 of this
Form 10-K.
Environmental Regulation
Our operations are subject to and affected by a variety of federal, state and
local environmental protection laws and regulations. We are involved in
environmental responses at some of our facilities and former facilities, and at
third-party sites not owned by us where we have been designated a Potentially
Responsible Party (PRP) by the EPA or by a state agency.
We manage various government-owned facilities on behalf of the government. At
such facilities, environmental compliance and remediation costs have
historically been the responsibility of the government and we relied (and
continue to rely with respect to past practices) upon government funding to pay
such costs. While the government remains responsible for capital and operating
costs associated with environmental compliance, responsibility for fines and
penalties associated with environmental noncompliance, in certain instances, is
being shifted from the government to the contractor with fines and penalties no
longer constituting allowable costs under the contracts pursuant to which such
facilities are managed.
Most of the laws governing environmental matters include criminal provisions. If
the Corporation were convicted of a violation of the federal Clean Air Act or
the Clean Water Act, the facility or facilities involved in the violation would
be listed on the EPA's List of Violating Facilities. The listing would continue
until the EPA concluded that the cause of the violation had been cured. Listed
facilities cannot be used in performing any U.S. Government contract awarded to
the Corporation during any period of listing by the EPA.
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The Corporation has incurred and will likely continue to incur liabilities under
various state and federal statutes for the cleanup of pollutants previously
released into the environment. We are responding to three administrative orders
issued by the California Regional Water Quality Control Board in connection with
our former Lockheed Propulsion Company facilities in Redlands, California. We
have been responding to soil and regional groundwater contamination in the San
Fernando Valley associated with our former operations in Burbank and Glendale,
California. In addition, we are involved in proceedings and potential
proceedings relating to environmental matters at other facilities, including
disposal of hazardous wastes and soil and water contamination. The extent of our
financial exposure cannot in all cases be reasonably estimated at this time.
Among the variables management must assess in evaluating costs associated with
these cases and remediation sites generally are changing cost estimates,
continually evolving governmental environmental standards and cost allowability
issues. For information regarding these matters, including current estimates of
the amounts that we believe are required for remediation or clean-up to the
extent estimable, see "Environmental Matters" in Management's Discussion and
Analysis of Results of Operations and Financial Condition on page 46 through 47
and Note 16 - Commitments and Contingencies on page 70 through page 72 of this
Form 10-K.
Research and Development
We conduct research and development activities under customer funded contracts
and with Independent Research and Development (IR&D) funds. IR&D efforts consist
of projects involving basic research, applied research, development, and systems
and other concept formulation studies. In 2001, we spent approximately $798
million of IR&D and bid and proposal funds, a substantial portion of which was
included in general and administrative costs allocable to U.S. Government
contracts.
During 2001, we did not undertake the development of a new product or line of
business requiring the investment of a material amount of our total assets,
other than increasing investments in the development or improvement of launch
vehicles.
See Research and development and similar costs in Note 1-- Significant
Accounting Policies of the Notes to Consolidated Financial Statements on page 56
of this Form 10-K.
Employees
At December 31, 2001, we had approximately 125,000 employees, the majority of
whom were located in the U.S. We have a continuing need for numerous skilled and
professional personnel to meet contract schedules and obtain new and ongoing
orders for our products. Approximately one-fifth of our employees are covered by
over a hundred separate collective bargaining agreements with various unions.
Management considers employee relations generally to be good.
A number of our existing collective bargaining agreements expire in any given
year. Historically, the Corporation has been successful at negotiating
successor agreements without any material disruption of operating activities.
There can be no assurance, however, that the Corporation will be successful in
its efforts to negotiate renewals of its existing collective bargaining
agreements when they become due. If the Corporation were unsuccessful in those
efforts, there is the potential that the Corporation could incur unanticipated
delays or expenses in the programs affected by any resulting work stoppages.
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Forward-Looking Statements - Safe Harbor Provisions
This report contains statements which, to the extent they are not recitations of
historical fact, constitute forward-looking statements within the meaning of the
Securities Act of 1933 and the Securities Exchange Act of 1934. The words
believe, estimate, anticipate, project, intend, expect, plan, outlook, forecast
and similar expressions are intended to identify forward-looking statements.
Statements and assumptions with respect to future revenues, income and cash
flows, program performance, the outcome of litigation, environmental remediation
cost estimates, and planned dispositions of assets are examples of
forward-looking statements. Numerous factors, including potentially the
following factors, could affect our forward-looking statements and actual
performance:
o the ability to obtain or the timing of obtaining future government awards;
o the availability of government funding and customer requirements both
domestically and internationally;
o changes in government or customer priorities due to revisions to strategic
objectives (including changes in priorities to respond to recent terrorist
acts or to improve homeland security);
o the termination of programs or contracts for convenience by customers;
o difficulties in developing and producing operationally advanced technology
systems;
o launch failures and potential problems that might result, including
potential loss of future or existing orders;
o the ability to procure insurance to cover operational and contractual
risks, including launch and satellite failures, on commercially reasonable
terms;
o the competitive environment (including, continued pricing pressures
associated with commercial satellites and launch services);
o economic business and political conditions domestically and internationally
(including economic disruption caused by recent terrorist acts, government
import and export policies, and economic uncertainties in Latin America);
o program performance (including the ability to perform fixed-price contracts
within estimated costs, subcontractor performance, and the timing of
product deliveries and customer acceptance);
o the level of returns on pension and retirement plan assets; and
o the outcome of contingencies (including completion of acquisitions and
divestitures, litigation and environmental remediation efforts).
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Our ability to monetize investments held for sale or businesses placed in
discontinued operations will depend upon market and economic conditions,
negotiation of acceptable terms with prospective purchasers and other factors,
and may require receipt of regulatory or governmental approvals. Realization of
the value of the Corporation's investments in equity securities, or related
equity earnings for a given period, may be affected by the investee's ability to
obtain adequate funding and execute its business plan, general market
conditions, industry considerations specific to the investee's business, and/or
other factors.
For a discussion identifying additional important factors that could cause
actual results to vary materially from those anticipated in the forward-looking
statements, see the discussion of Industry Considerations on page 28 through
page 31, Competition and Risk on page 11 through page 13, Government Contracts
and Regulation on page 13 through page 14, Management's Discussion and Analysis
of Financial Condition and Results of Operations on page 28 through page 48,
Note 1 - Significant Accounting Policies on page 55 through page 58, Note 2 -
Exit from the Global Telecommunications Services Business on page 58 through
page 60, and Note 16 - Commitments and Contingencies on page 70 through page 72
of this Form 10-K. Other factors, in addition to those described, may affect our
forward-looking statements or actual results.
Our actual financial results likely will be different from those projected due
to the inherent nature of projections and may be better or worse than projected.
Given these uncertainties, you should not rely on forward-looking statements.
The forward-looking statements contained in this report speak only as of the
date of this report. We expressly disclaim a duty to provide updates to
forward-looking statements after the date of this report to reflect the
occurrence of subsequent events, changed circumstances, changes in our
expectations, or the estimates and assumptions associated with them. The
forward-looking statements in this report are intended to be subject to the safe
harbor protection provided by the federal securities laws.
ITEM 2. PROPERTIES
At December 31, 2001, we operated in 384 locations (including, offices,
manufacturing plants, warehouses, service centers, laboratories and other
facilities) throughout the United States and internationally. Of these, we owned
56 locations aggregating approximately 33 million square feet and leased space
at 328 locations aggregating approximately 22 million square feet. We also
manage or occupy various government-owned facilities. The U.S. Government also
furnishes equipment that we use in some of our businesses.
These figures reflect asset divestitures and purchases by the Corporation in
2001. In January 2001, we sold our Environmental Technologies organization and
assigned leasehold interests at eight locations, totaling approximately 150,000
square feet in Ukiah, California. In August 2001, we sold the Lockheed Martin
IMS Corporation business and assigned leasehold interests in 104 locations
throughout the United States comprising approximately one million square feet.
In
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December 2001, we completed the acquisition of OAO and assumed leasehold
interests totaling approximately 292,000 square feet.
At December 31, 2001, our lines of business had major operations at the
following locations:
Systems Integration - Camden, Arkansas; Orlando, Florida; Gaithersburg and
Rockville, Maryland; Eagan, Minnesota; Moorestown/Mt. Laurel, New Jersey;
Owego and Syracuse, New York; Akron, Ohio; Grand Prairie, Texas; and
Manassas, Virginia.
Space Systems - Goodyear, Arizona; San Diego, San Jose, Sunnyvale and Palo
Alto, California; Littleton, Colorado; New Orleans, Louisiana; Clarksburg,
Maryland; Valley Forge, Newtown and Norristown, Pennsylvania; and Reston
and Fairfax, Virginia.
Aeronautics - Palmdale, California; Marietta, Georgia; and Fort Worth,
Texas.
Technology Services - Sunnyvale, California; Cherry Hill, New Jersey;
Albuquerque, New Mexico; Niskayuna, New York; Greenville, South Carolina;
Houston and San Antonio, Texas; Seabrook, Maryland; and Washington, D.C.
Corporate and Other - Bethesda and Rockville, Maryland; and Arlington
(Crystal City), Virginia.
At December 31, 2001, a summary of our floor space by business segment consisted
of:
(Square feet in millions)
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Government
Leased Owned Owned Total
- ----------------------------- ------------ --------- ----------- ---------
Systems Integration 9.0 13.8 0.2 23.0
- ----------------------------- ------------ --------- ----------- ---------
Space Systems 5.3 11.9 5.1 22.3
- ----------------------------- ------------ --------- ----------- ---------
Aeronautics 1.5 5.1 14.7 21.3
- ----------------------------- ------------ --------- ----------- ---------
Technology Services 4.9 0.1 6.1 11.1
- ----------------------------- ------------ --------- ----------- ---------
Corporate & Other 1.6 2.4 0.0 4.0
- ----------------------------- ------------ --------- ----------- ---------
Total 22.3 33.3 26.1 81.7
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At December 31, 2001, we owned various large tracts of land that are available
for sale or development. The location and approximate size of these tracts
include:
-------------------------------------------------------------------------
Location Acreage
------------------------------------- -----------------------------------
Beaumont, California 11,700
------------------------------------- -----------------------------------
Orlando, Florida 750
------------------------------------- -----------------------------------
Palmdale, California 650
------------------------------------- -----------------------------------
Austin, Texas 250
-------------------------------------------------------------------------
A portion of our activity is related to engineering and research and
development, which is not susceptible to productive capacity analysis. In the
area of manufacturing, most of the operations are of a job-order nature, rather
than an assembly line process, and productive equipment has multiple uses for
multiple products. Management believes that all of our major physical facilities
are in good condition and are adequate for their intended use.
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ITEM 3. LEGAL PROCEEDINGS
We are parties or have property subject to litigation and other proceedings,
including matters arising under provisions relating to the protection of the
environment. Based on the information available to us as of the date of filing
of this report, we do not believe that resolution of any of these matters will
have a material adverse effect upon the Corporation's financial condition.
We are primarily engaged in providing products and services under contracts with
the U.S. Government and, to a lesser degree, under direct foreign sales
contracts, some of which are funded by the U.S. Government. These contracts are
subject to extensive legal and regulatory requirements and, from time to time,
agencies of the U.S. Government investigate whether our operations are being
conducted in accordance with these requirements. U.S. Government investigations
of us, whether relating to these contracts or conducted for other reasons, could
result in administrative, civil or criminal liabilities, including repayments,
fines or penalties being imposed upon us, or could lead to suspension or
debarment from future U.S. Government contracting. U.S. Government
investigations often take years to complete and many result in no adverse action
against us. For the U.S. government investigations noted below, it is too early
for us to determine whether adverse decisions relating to these investigations
could ultimately have a material adverse effect on our results of operations or
financial condition.
As previously reported, two consolidated class action complaints have been filed
against the Corporation and certain of its officers and directors in the United
States District Court for the Central District of California, In re Lockheed
Martin Corp. Securities Litigation, and Kops et al. v. Lockheed Martin
Corporation et al. The complaints allege that the defendants violated U.S.
securities laws by allegedly employing devices, schemes and artifices to
defraud; making untrue statements of material facts or omitting to state
material facts necessary in order to make statements, in light of the
circumstances under which they were made, not misleading; or engaging in acts,
practices and a course of business that operated as a fraud or deceit upon class
members in connection with their purchases of our common stock. According to the
complaints, class members were damaged, because they paid artificially inflated
prices for our stock. The plaintiffs are seeking damages and costs, as well as
equitable, injunctive and other relief.
The Securities Litigation complaint alleges claims on behalf of a putative class
of shareholders who purchased Lockheed Martin stock between August 13, 1998 and
December 23, 1998. The defendants in that action include the Corporation, Vance
D. Coffman, Marcus C. Bennett, Norman R. Augustine and three former officers of
the Corporation. The Kops complaint alleges claims on behalf of a putative class
of shareholders who purchased Lockheed Martin stock between January 28, 1999 and
June 9, 1999. The defendants in that action include the Corporation, Vance D.
Coffman, Marcus C. Bennett and two former officers of the Corporation.
In October 2000, the district court dismissed, with leave to amend, all of the
plaintiffs' allegations in the Kops complaint, with the exception of an
allegation that the Corporation improperly recognized revenue related to a
government contract in the first quarter of 1999. The district court also
dismissed plaintiffs' allegations in the Securities Litigation complaint. The
plaintiffs in that matter subsequently filed amended consolidated complaints,
which were substantially similar to the dismissed complaints and include
allegations that the Corporation failed to disclose properly accounting
adjustments related to its CalComp subsidiary and the reversal of a reserve on
the Atlas program. The Corporation has filed motions to dismiss the
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amended consolidated complaints, which remain pending. We intend to defend these
actions vigorously.
Since November 2000, the SEC has been investigating the adequacy of the
Corporation's disclosures regarding the regulatory approval of the proposed
merger between the Corporation and Northrop Grumman Corporation, which was
announced in 1997 and terminated in 1998. The Corporation is cooperating with
the SEC's investigation.
As previously reported, in 1994, we were awarded a $180 million fixed price
contract by the DoE for the design, construction and limited test of remediation
facilities, and the remediation of waste found in Pit 9, located on the Idaho
National Engineering and Environmental Laboratory reservation. The DoE, through
Lockheed Martin Idaho Technologies Company (LMITCO), its management contractor,
terminated the Pit 9 contract for default. On June 1, 1998, LMITCO, at the DoE's
direction, filed suit against us in the U.S. District Court in Idaho, seeking,
among other things, recovery of approximately $54 million previously paid to us
by LMITCO under the Pit 9 contract. We filed a lawsuit against the DoE on the
same day in the U.S. Court of Federal Claims in Washington, D.C., challenging
the default termination and seeking to recover damages. In October 2001, the
court dismissed our complaint against the DoE based on a lack of contractual
privity between the Corporation and the DoE. We recently appealed that decision
to the United States Court of Appeals for the Federal Circuit. We continue to
defend against the DoE's lawsuit, while independently pursuing resolution of the
matter through non-litigation means. For additional information regarding these
matters, see Note 16 - Commitments and Contingencies on page 70 through page 72
of this Form 10-K.
As previously reported, in February 2000, we were served with a grand jury
subpoena issued by the U.S. District Court for the Southern District of Texas in
Houston seeking documents related to cost accounting issues in connection with
NASA service and support contracts performed by Lockheed Engineering & Sciences
Company and its successors, Lockheed Martin Engineering & Sciences Services and
Lockheed Martin Space Operations. We are cooperating with the Government's
investigation.
As previously reported, since March 1997, the U.S. Attorney's Office for the
Middle District of Florida has been investigating, in the grand jury and
otherwise, allegations of fraud in connection with certain LANTIRN program
contracts. These allegations, in part, were first made in two complaints filed
against us as a qui tam action under the Civil False Claims Act and unsealed in
1996. A qui tam action is a lawsuit filed by private plaintiff, or relator, in
the name of the Government in which the relator is entitled to a portion of any
recovery. On November 20, 2001, the Department of Justice Civil Division
intervened in one of the lawsuits filed in the U.S. District Court for the
Middle District of Florida, alleging that the Corporation in 1994 defectively
priced a proposal submitted to the Air Force for the foreign military sale (FMS)
of LANTIRN pods. We are cooperating with the Government's continuing
investigation. We also continue to defend the lawsuits vigorously.
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Since July 1999, as previously reported, the Corporation and several of its
current and former employees have been served with grand jury subpoenas issued
by the United States District Court for the Central District of California. The
subpoenas sought documents and testimony relating to the 1990 international sale
of area defense radar systems by the predecessor of the Corporation's former
subsidiary, Lockheed Martin Sanders, and the compensation of an international
sales consultant in connection with that sale. We have cooperated with the
government's investigation of this matter.
For the past few years, as previously reported, we have been in litigation with
residents in the cities of Burbank and Redlands in California regarding
allegations of personal injury, property damage, and other tort claims on behalf
of individuals and putative classes of individuals arising from our alleged
contribution to regional groundwater contamination. During the second quarter of
2001, the Corporation entered into a final settlement agreement that disposed of
the remaining state court claims in the Burbank matter, which originally
comprised 3,400 individual claimants. The Burbank litigation in the U.S.
District Court for the Central District of California has been stayed pending
completion of a proposed settlement, which would resolve the remaining personal
injury and property damage claims. With regard to claims in the Redlands matter,
the trial court certified both a punitive damages and a medical monitoring
class. The California Court of Appeals subsequently reversed this ruling and
de-certified the classes. This issue is now on appeal before the California
Supreme Court. Trial preparations continue with respect to the 800 individual
claimants in Redlands. We intend to continue to defend these claims vigorously.
We are subject to federal and state requirements for protection of the
environment, including those for discharge of hazardous materials and
remediation of contaminated sites. As a result, we are a party to or have our
property subject to various other lawsuits or proceedings involving
environmental protection matters. Due in part to their complexity and
pervasiveness, such requirements have resulted in us being involved with related
legal proceedings, claims and remediation obligations. The extent of our
financial exposure cannot in all cases be reasonably estimated at this time. For
information regarding these matters, including current estimates of the amounts
that we believe are required for remediation or clean-up to the extent
estimable, see "Environmental Matters" in Management's Discussion and Analysis
of Results of Operations and Financial Condition on page 46 through 47 and Note
16 - Commitments and Contingencies on page 70 through page 72 of this Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 2001.
ITEM 4(a). EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers are listed below. There were no family relationships
among any of our executive officers and directors. All officers serve at the
pleasure of the Board of Directors.
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Principal Occupation and
Name Positions and Business Experience
(Age at 12/31/01) Offices Held (Past Five Years)
- ----------------- ------------ -----------------
Vance D. Coffman Chairman and Chief Chairman since April
(57) Executive Officer 1998, Chief Executive
Officer since August 1997
and Board member since
1996; Vice Chairman of
the Board from August
1997 to April 1998;
President from June 1996
to July 1997 and from
October 1999 to April
2000; Chief Operating
Officer from January 1996
to July 1997; Executive
Vice President from
January to June 1996;
President and Chief
Operating Officer, Space
& Strategic Missiles
Sector from March 1995 to
December 1995; previously
served as Executive Vice
President of Lockheed
from 1992 to 1995; and
President of Lockheed
Space Systems Division
from 1988 to 1992.
Robert J. Stevens President and Chief President and Chief
(50) Operating Officer Operating Officer since
October, 2000; Executive
Vice President and Chief
Financial Officer from
October 1999 to March
2001; Vice President of
Strategic Development
from November 1998
through September 1999;
President and Chief
Operating Officer, Energy
& Environment Sector from
January 1998 to June
1999; President, Air
Traffic Management
Division from June 1996
through January 1998;
Executive Vice President
and Senior Vice President
and Chief Financial
Officer of Air Traffic
Management from December
1993 to May 1996; and
General Manager of Loral
Systems Manufacturing
Company from 1987 to
1993.
Michael F. Camardo Executive Vice President Executive Vice President
(59) - Technology Services - Technology Services
since October 1999;
President, Lockheed
Martin Technology
Services Group from March
1995 through September
1999; President, Martin
Marietta Services Group
from April 1993 to March
1995.
Robert B. Coutts Executive Vice President - Executive Vice President
(51) Systems Integration - Systems Integration
since October 1999;
President and Chief
Operating Officer,
Electronics Sector from
October 1998 through
September 1999;
President, Lockheed
Martin Government
Electronics Systems from
January 1997 until
September 1998; President
Lockheed Martin Aero and
Naval Systems from
September 1994 to
December 1996; previously
served as Vice President,
Sourcing for the Martin
Marietta Corporation.
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Arthur E. Johnson Senior Vice President - Senior Vice President -
(54) Strategic Development Strategic Development
since October 2001; Vice
President - Strategic
Development from October
1999 through September
2001; President and Chief
Operating Officer,
Information & Services
Sector from August 1997
through September 1999;
President, Lockheed
Martin Systems
Integration Group from
January 1997 to August
1997; President, Lockheed
Martin Federal Systems
Group from January 1996
to January 1997; and
President, Loral Federal
Systems Group from
January 1994 to January
1996.
Dain M. Hancock Executive Vice President - Executive Vice President
(60) Aeronautics - Aeronautics since
November 1999 and
President of the Lockheed
Martin Aeronautics
Company since January
2000; President of
Lockheed Martin Tactical
Aircraft Systems from
March 1995 to November
1999; Vice President of
Lockheed Corporation from
March 1993 to March 1995.
Christopher E. Senior Vice President Senior Vice President and
Kubasik (40) and Chief Financial Officer Chief Financial Officer
since October 2001; Vice
President and Chief
Financial Officer from
February through
September 2001; Vice
President and Controller
from November 1999 to
August 2001; prior to
joining Lockheed Martin,
with Ernst & Young LLP
since 1983, partner since
1996.
Frank H. Menaker, Jr. Senior Vice President and Senior Vice President and
(61) General Counsel General Counsel since
July 1996; Vice President
and General Counsel for
Lockheed Martin
Corporation from March
1995 to July 1996, having
served in the same
capacity for Martin
Marietta Corporation from
1981 until March 1995.
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Janet L. McGregor Vice President and Vice President and
(47) Treasurer Treasurer since May 1999;
Vice President-Finance
for Electronics Sector
from August 1996 to May
1999; Vice President and
Assistant Treasurer from
March 1995 to August
1996; previously served
as Treasurer of Martin
Marietta Corporation from
1992 until March 1995.
Albert E. Smith Executive Vice President Executive Vice President
(52) - Space Systems - Space Systems since
October 1999 and
President of Lockheed
Martin Space Systems
Company since January
2000; President, Lockheed
Martin Missiles & Space
from June through
September 1999;
President, Lockheed
Martin Aerospace
Electronic Systems from
December 1998 to June
1999; President, Sanders,
a Lockheed Martin
Company, from February to
December 1998; President,
Harris Corporation, a
supplier of electronic
components, from April
1996 to February 1998;
Executive Vice President,
Lockheed Martin Missiles
& Space from January 1996
to April 1996; Vice
President and Assistant
General Manager-Commercial,
Lockheed Martin Space
Systems Division from
1993 to January 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
At January 31, 2002, we had approximately 49,425 holders of record of our Common
Stock, $1 par value. Our Common Stock is traded on the New York Stock Exchange,
Inc. under the symbol LMT. Information concerning stock prices and dividends
paid during the past two years is as follows:
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Common Stock -- Dividends Paid and Market Prices
- ------------------- ------------------------------------------------------------------------------------------
Quarter Dividends Paid Market Prices (High-Low)
- ------------------- ------------------------------------- ----------------------------------------------------
2001 2000 2001 2000
- ------------------- ------------------- ----------------- --------------------------- ------------------------
First $ 0.11 $0.11 $ 39.50 - 31.00 $22.31 - 16.50
- ------------------- ------------------- ----------------- --------------------------- ------------------------
Second 0.11 0.11 39.80 - 34.05 27.31 - 19.81
- ------------------- ------------------- ----------------- --------------------------- ------------------------
Third 0.11 0.11 46.00 - 35.36 33.60 - 24.06
- ------------------- ------------------- ----------------- --------------------------- ------------------------
Fourth 0.11 0.11 52.98 - 42.40 37.58 - 30.06
- ------------------- ------------------- ----------------- --------------------------- ------------------------
Year $0.44 $0.44 $52.98 - 31.00 $37.58 -16.50
- ------------------- ------------------- ----------------- --------------------------- ------------------------
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ITEM 6. SELECTED FINANCIAL DATA
CONSOLIDATED FINANCIAL DATA--FIVE YEAR SUMMARY
Lockheed Martin Corporation
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(In millions, except per share data) 2001(a) 2000(b) 1999(c) 1998(d) 1997(e)
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Operating Results
Net sales $ 23,990 $ 24,541 $ 24,999 $ 25,809 $ 27,764
Cost of sales 22,447 22,881 23,346 23,492 25,380
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Earnings from operations 1,543 1,660 1,653 2,317 2,384
Other income and expenses, net (655) (409) 344 170 482
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888 1,251 1,997 2,487 2,866
Interest expense 700 919 809 861 842
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Earnings from continuing operations before
income taxes, extraordinary item and cumulative
effect of change in accounting 188 332 1,188 1,626 2,024
Income tax expense 109 714 459 648 667
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Earnings (loss) from continuing operations before
extraordinary item and cumulative effect of
change in accounting 79 (382) 729 978 1,357
Discontinued operations (1,089) (42) 8 23 (57)
Extraordinary item (36) (95) -- -- --
Cumulative effect of change in accounting -- -- (355) -- --
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Net (loss) earnings $ (1,046) $ (519) $ 382 $ 1,001 $ 1,300
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Earnings (Loss) Per Common Share
Basic:
From continuing operations before extraordinary item
and cumulative effect of change in accounting $ 0.18 $ (0.95) $ 1.91 $ 2.60 $ (1.41)
Discontinued operations (2.55) (0.10) 0.02 0.06 (0.15)
Extraordinary item (0.08) (0.24) -- -- --
Cumulative effect of change in accounting -- -- (0.93) -- --
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$ (2.45) $ (1.29) $ 1.00 $ 2.66 $ (1.56)
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Diluted:
From continuing operations before extraordinary item
and cumulative effect of change in accounting $ 0.18 $ (0.95) $ 1.90 $ 2.57 $ (1.41)
Discontinued operations (2.52) (0.10) 0.02 0.06 (0.15)
Extraordinary item (0.08) (0.24) -- -- --
Cumulative effect of change in accounting -- -- (0.93) -- --
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$ (2.42) $ (1.29) $ 0.99 $ 2.63 $ (1.56)
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Cash dividends $ 0.44 $ 0.44 $ 0.88 $ 0.82 $ 0.80
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Condensed Balance Sheet Data
Current assets $ 10,778 $ 13,339 $ 11,080 $ 10,706 $ 10,218
Property, plant and equipment 2,991 2,941 3,361 3,489 3,653
Intangible assets related to contracts and programs acquired 939 1,073 1,259 1,418 1,566
Goodwill 7,371 7,479 9,152 9,521 9,856
Other assets 5,575 5,594 5,409 3,610 3,068
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Total $ 27,654 $ 30,426 $ 30,261 $ 28,744 $ 28,361
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Short-term borrowings $ -- $ 12 $ 475 $ 1,043 $ 494
Current maturities of long-term debt 89 882 52 886 876
Other current liabilities 9,600 9,408 8,298 8,338 7,819
Long-term debt 7,422 9,065 11,427 8,957 10,528
Post-retirement benefit liabilities 1,565 1,647 1,805 1,903 1,993
Other liabilities 2,535 2,252 1,843 1,480 1,475
Stockholders' equity 6,443 7,160 6,361 6,137 5,176
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Total $ 27,654 $ 30,426 $ 30,261 $ 28,744 $ 28,361
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Common shares outstanding at year end 441.2 431.4 397.8 393.3 388.8
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Notes to Five Year Summary
(a) Includes the effects of nonrecurring and unusual items which, on a combined
basis, decreased earnings from continuing operations before income taxes by
$918 million, $615 million after tax ($1.42 per diluted share). Also
includes a nonrecurring and unusual gain from the disposal of a business
and charges for the Corporation's exit from its global telecommunications
services business which is included in discontinued operations and which,
on a combined basis, increased the net loss by $1 billion ($2.38 per
diluted share). Includes an extraordinary loss on the early extinguishment
of debt which resulted in a nonrecurring and unusual charge that increased
the net loss by $36 million ($0.08 per diluted share).
(b) Reflects the business combination with COMSAT Corporation effective August
2000. Includes the effects of nonrecurring and unusual items which, on a
combined basis, decreased earnings from continuing operations before income
taxes by $539 million, $856 million after tax ($2.12 per diluted share).
Also includes an extraordinary loss on the early extinguishment of debt
which resulted in a nonrecurring and unusual charge that increased the net
loss by $95 million ($0.24 per diluted share).
(c) Includes the effects of nonrecurring and unusual items which, on a combined
basis, increased earnings from continuing operations before income taxes by
$249 million, $162 million after tax ($0.42 per diluted share). Also
includes a cumulative effect adjustment relating to the adoption of SOP No.
98-5 regarding costs for start-up activities which resulted in a
nonrecurring and unusual charge that reduced net earnings by $355 million
($0.93 per diluted share).
(d) Includes the effects of nonrecurring and unusual items which, on a combined
basis, decreased net earnings by $162 million, $136 million after tax
($0.36 per diluted share).
(e) Includes the effects of a nonrecurring and unusual tax-free gain of $311
million and the aggregate effects of other nonrecurring and unusual items
which decreased net earnings by $369 million, $245 million after tax. On a
combined basis, these items decreased diluted loss per share by $0.15. The
loss per share also includes the effects of a deemed preferred stock
dividend resulting from a transaction with GE which reduced the basic and
diluted per share amounts by $4.93.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Lockheed Martin Corporation
December 31, 2001
Lockheed Martin Corporation (Lockheed Martin or the Corporation) is engaged
in the conception, research, design, development, manufacture, integration and
operation of advanced technology systems, products and services. The Corporation
serves customers in both domestic and international defense and commercial
markets, with its principal customers being agencies of the U.S. Government. The
following discussion should be read in conjunction with the audited consolidated
financial statements included herein.
Industry Considerations
In recent years, domestic and worldwide political and economic developments
have significantly affected the markets for defense and advanced technology
systems, products and services. Two events in 2001 had a dramatic impact on the
domestic and international political and economic landscape. They impacted
Lockheed Martin and the defense industry generally. First, the events of
September 11 created uncertainty and exposed defense vulnerabilities in security
and the overall defense of our homeland. And second, the conclusions of the
Quadrennial Defense Review (QDR) reflect a transformation to a policy of
developing specific capabilities for overall national defense versus a policy
designed for defeating a specific enemy threat. Transforming the nation's
defense posture to a capabilities-based approach involves creating the ability
for a more flexible response with greater force mobility, stronger space
capabilities, missile defense, improved information systems security and an
increased emphasis on homeland defense.
The President's proposed budget for the U.S. Department of Defense (DoD)
for fiscal year 2003 and beyond reflects the above-mentioned transformation of
national defense policy and responds to increased needs for homeland security
and defeating terrorism. Budget increases are projected for operational
readiness and personnel needs, as well as for both the procurement and the
research and development accounts. While there is no assurance that the proposed
increased DoD budget levels will be approved by Congress, after over a decade of
downward trends, the current defense budget outlook is one of growth. The
Corporation's experience and capabilities are well aligned with U.S. defense
priorities. Uncertainties remain, however, relative to the level of growth and
the amount of the budget that will be allocated to the investment accounts
(i.e., procurement, research and development). The following graph depicts past
expenditures and future increases in the defense budget proposed by the
President.
[graphic appears here]
Department of Defense Budget
FY'92 FY'93 FY'94 FY'95 FY'96 FY'97 FY'98 FY'99
OM&MP $181.22 $163.97 $160.37 $165.56 $163.78 $162.34 $166.82 $175.65
Investment 100.00 91.00 79.00 79.00 78.00 79.00 82.00 89.00
Other 1.00 12.00 12.00 10.00 13.00 17.00 9.00 14.00
FY'00 FY'01 FY'02 FY'03 FY'04 FY'05 FY'06 FY'07
OM&MP $188.00 $183.00 $210.00 $225.00 $241.20 $254.06 $266.10 $272.00
Investment 94.00 103.00 109.00 120.00 132.84 138.04 142.18 157.00
Other 8.00 9.00 12.00 13.00 14.46 15.29 15.40 22.00
Source: President Bush's proposed Department of Defense Budget for fiscal year
2003 and beyond.
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Lockheed Martin's broad mix of programs and capabilities makes it a likely
beneficiary of any increases in defense spending. The Corporation's product
areas and programs include missile defense, space intelligence, precision
munitions, combat systems (air, land and sea-based) and aircraft. In terms of
size and long-term potential impact, two of the Corporation's most important
programs are the F-22 fighter aircraft program and the Joint Strike Fighter
(JSF) program. The Corporation was awarded the JSF contract in October 2001. In
addition, Lockheed Martin is represented in virtually every aspect of land, sea,
air and space-based missile defense, including the PAC-3 and THAAD programs. In
the areas of space intelligence and information superiority, it has leadership
positions on Milstar, Advanced Extremely High Frequency (AEHF) and the
Space-Based Infrared System-High (SBIRS-H) programs, along with battle
management command and control capabilities. In airlift, the Corporation has the
C-130J program and is under contract to upgrade the C-5 strategic airlift
aircraft. Many of these programs are very large and require significant funding
over several budgetary cycles. There are risks associated with these and other
large, highly visible programs that are subject to appropriation by Congress
which, because of their magnitude, could attract substantial focus as potential
targets for reductions or extensions of their funding to pay for other programs.
In addition, increased emphasis on homeland defense may increase demand for
utilization of the Corporation's capabilities in areas such as air traffic
management, biohazard detection systems for postal equipment, ensuring
information systems security and other technical systems solutions. Recent
trends have indicated increased demand by federal and civil government agencies
for upgrading and investing in new information technology systems, an area in
which the Corporation has continued to focus its resources.
Over the past several years, industry participants reacted to historically
shrinking defense budgets for procurement, research and development by combining
to maintain critical mass and achieve significant cost savings. The U.S.
Government has been generally supportive of industry consolidation. Through its
own consolidation activities, the Corporation has been able to pass along
savings to its customers, principally the DoD. More recently, major aerospace
companies have focused their efforts on cost savings and efficiency
improvements, as well as generation of cash to repay debt incurred during the
period of consolidation.
Worldwide defense budgets have been declining over the past decade. As a
result, consolidation activities have also occurred within the European
aerospace industry, resulting in fewer but larger and more capable competitors,
potentially resulting in an environment where there could be less demand abroad
for products from U.S. companies. Such an environment could affect opportunities
for European partnerships and sales potential for U.S. exports. In addition,
there has been some consolidation between U.S. and European aerospace companies.
As a government contractor, the Corporation is subject to U.S. Government
oversight. The government may investigate and make inquiries of the
Corporation's business practices and conduct audits of contract performance and
cost accounting. Depending on the results of these audits and investigations,
the government may make claims against the Corporation. Under U.S. Government
procurement regulations and practices, an indictment of a government contractor
could result in that contractor being fined and/or suspended for a period of
time from eligibility for bidding on, or for award of, new government contracts.
A conviction could result in debarment for a specified period of time. Similar
government oversight exists in most other countries where the Corporation
conducts business. 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 the Corporation's business or its consolidated
results of operations, cash flows or financial position.
Recent procurement policy changes, such as an increase in the progress
payment rate and the use of performance-based payments, have had a positive
impact on the Corporation's financial position. However, the Corporation remains
exposed to other inherent risks associated with U.S. Government contracting,
including technological uncertainties and obsolescence and dependence on annual
Congressional appropriation and allotment of funds. Many of the Corporation's
programs involve development and application of state-of-the-art technologies
aimed at achieving challenging goals.
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As a result, setbacks and failures can occur. It is important for the
Corporation to resolve performance issues related to such programs in a timely
manner to achieve success on these programs.
The Corporation also conducts business in related commercial and
non-defense markets. Although these lines of business are not dependent on
defense budgets, they share many of the risks associated with the Corporation's
defense businesses, as well as other risks unique to the commercial marketplace.
Such risks include development of competing products, technological feasibility
and product obsolescence.
The launch vehicle industry continues to experience a reduction in demand
due primarily to delays in completing certain satellite systems as a result of
continuing overcapacity in the telecommunications industry. Continued economic
uncertainty has adversely affected the capital markets and has made it difficult
for many ventures, especially telecommunications and other high-technology
companies, to attract the funding needed for new capital investment. Issues such
as these were evidenced in 2001 by the inability of Astrolink International, LLC
(Astrolink) to obtain additional funding to complete a broadband satellite
constellation. The Corporation holds a 31% interest in Astrolink, and was under
contract to manufacture four satellites and to provide related launch and other
services. These contracts were terminated in the fourth quarter of 2001 due to
funding considerations. Factors such as these have resulted in pricing pressures
in the launch vehicle marketplace associated with reduced demand and increased
competition. This comes at a time when the Corporation is making significant
investments in the Evolved Expendable Launch Vehicle (Atlas V) program, the
Corporation's next generation launch vehicle. This program has required
investment of funds for research and development, start-up and certain other
nonrecurring costs, and launch facilities. A portion of these expenditures have
been funded under an agreement with the U.S. Government. Orders to-date for the
Atlas V launch vehicle have been lower than expected, resulting in lower
anticipated production levels.
The above factors relative to start-up issues and delays in completion of
satellite systems also contributed to a reduction in commercial satellite
orders. In addition, similar to the launch vehicle market, the commercial
satellite market is experiencing pricing pressures due to excess capacity and
reduced demand. Further impacting satellite demand have been the business
difficulties encountered by certain commercial satellite systems, resulting in
increased investor scrutiny and reduced access to capital for new ventures, and
a reduction in the total market size in the near term. The Corporation is
seeking to reduce costs related to its commercial satellite programs and is
evaluating alternative strategies related to those businesses while maintaining
its focus on successful operations, though it cannot predict the outcome of
these efforts.
In connection with its portfolio of offered products and services in
commercial space, the Corporation has entered into various joint venture,
teaming and other business arrangements. Such arrangements generally include a
formal plan for funding of the business which typically requires commitments for
funding from the partners, and may require the business to obtain financing from
other sources. To the extent the business is unable to obtain such financing,
the business partners, including the Corporation, would be required to assess
alternatives relative to further funding for the business. In addition, some of
these business arrangements include foreign partners. The conduct of
international business introduces other risks into the Corporation's operations,
including changing economic conditions, fluctuations in relative currency
values, regulation by foreign jurisdictions and the potential for unanticipated
cost increases and timing issues resulting from the possible deterioration of
political relations.
The nature of the Corporation's international business also makes it
subject to export control regulation by the U.S. Department of State and the
Department of Commerce. Violations of these regulations can result in monetary
penalties and denial of export privileges. Management is currently unaware of
any violations of export control regulations which could have a material adverse
effect on the Corporation's business or its consolidated results of operations,
cash flows or financial position.
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Lockheed Martin owns 51 percent of Lockheed-Khrunichev-Energia
International, Inc. (LKEI), a joint venture with two Russian government-owned
space firms. LKEI has exclusive rights to market launches of commercial,
non-Russian-origin space payloads on the Proton rocket from a launch site in
Kazakhstan. In addition, the Corporation and LKEI each hold a 50 percent
ownership interest in International Launch Services (ILS), a joint venture
formed to market commercial Atlas and Proton launch services worldwide. The
Corporation consolidates the results of operations of LKEI and ILS into its
financial statements. Contracts for Proton launch services typically provide for
substantial advances from the customer in advance of launch, and a sizable
percentage of these advances are forwarded to Khrunichev State Research and
Production Space Center (Khrunichev), the manufacturer in Russia, to provide for
the manufacture of the related launch vehicle. Significant portions of such
advances would be required to be refunded to each customer if launch services
were not successfully provided within the contracted time frames. At December
31, 2001, $514 million related to launches not yet provided was included in
customer advances and amounts in excess of costs incurred, and $672 million of
payments to Khrunichev for launches not yet provided was included in
inventories. Since inception, launch services provided through LKEI and ILS have
been in accordance with contract terms.
The Corporation has entered into agreements with RD AMROSS, a joint venture
of the Pratt & Whitney division of United Technologies Corporation and the
Russian firm NPO Energomash, for the development and purchase, subject to
certain conditions, of up to 101 RD-180 booster engines for use in two models of
the Corporation's Atlas launch vehicle. Terms of the agreements call for
payments to be made to RD AMROSS upon the achievement of certain milestones in
the development and manufacturing processes. Payments of $58 million made under
these agreements were included in the Corporation's inventories at December 31,
2001.
Exit From the Global Telecommunications Services Business
On December 7, 2001, the Corporation announced that it would exit its
global telecommunications services business as a result of continuing
overcapacity in the telecommunications industry and deteriorating business
and economic conditions in Latin America. In connection with its decision,
the Corporation reassigned certain of the businesses in the Global
Telecommunications segment to other business segments, plans to sell the
remaining operations, has positioned the remaining investments for monetization,
and is eliminating the administrative infrastructure supporting such businesses
and investments. Separately, the Corporation decided in the fourth quarter of
2001 not to provide further funding to Astrolink and, due primarily to
Astrolink's inability to obtain additional funding from other sources, wrote off
its investment in Astrolink. As a result of the above actions, the Global
Telecommunications segment will no longer be reported as a separate business
segment.
The Corporation recognized nonrecurring and unusual charges, net of state
income tax benefits, totaling approximately $2.0 billion in the fourth quarter
of 2001 related to these actions. The charges reduced net earnings by
approximately $1.7 billion ($3.98 per diluted share). The cash impact of the
fourth quarter charges discussed above is not expected to be material.
Approximately 650 positions were eliminated from the former Global
Telecommunications segment as a result of these actions.
Lockheed Martin Global Telecommunications (LMGT), a wholly-owned subsidiary
of the Corporation, was formed in 1999 from the combination of investments in
several existing joint ventures and certain other elements of the Corporation
previously included in the Systems Integration and Space Systems segments. The
Corporation began reporting LMGT as a separate business segment beginning in the
third quarter of 2000. In August 2000, Lockheed Martin completed its merger with
COMSAT Corporation (COMSAT). The operations of COMSAT have been included in the
results of operations of LMGT since August 1, 2000. The total purchase price for
COMSAT was approximately $2.6 billion. The
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COMSAT transaction was accounted for using the purchase method of accounting,
under which the purchase price was allocated to assets acquired and liabilities
assumed based on their fair values. Included in these allocations were
adjustments totaling approximately $2.1 billion to record investments in equity
securities at fair value and goodwill.
The LMGT businesses retained by the Corporation have been realigned as
follows:
o The Systems & Technology line of business and the COMSAT General
telecommunications business unit have been realigned within the Space
Systems segment.
o Enterprise Solutions-U.S., a commercial information technology business,
has been realigned within the Technology Services segment.
The LMGT equity investments positioned for monetization include Intelsat,
Ltd. (Intelsat), Inmarsat Ventures plc (Inmarsat), New Skies Satellites, N.V.
(New Skies), ACeS International, Ltd. (ACeS), Americom Asia-Pacific, LLC and
Astrolink. These investments, which had an aggregate carrying value of
approximately $1.6 billion at December 31, 2001, are now reported as part of the
Corporate and Other segment. The investments in Intelsat, Inmarsat and New Skies
are subject to regulation by the Federal Communications Commission (FCC). FCC
decisions and policies have had, and may continue to have, a significant impact
on these entities. The ORBIT Act, enacted in March 2000, established deadlines
for the privatization and completion of initial public offerings by these
companies, as well as specific criteria for determining whether the
privatizations of those entities are pro-competitive. If those criteria are not
met, the FCC may limit access by U.S. users to the satellite capacity of the
privatized entities for certain services. Intelsat privatized in July 2001 and
Inmarsat privatized in 1999. Both have plans to access the public capital
markets. New Skies privatized in 1998 and completed an initial public offering
in 2000. If Intelsat and Inmarsat were unable to satisfy the ORBIT Act criteria
and are denied U.S. market access, the value of the Corporation's investment in
those entities could be adversely affected.
Following is a discussion which describes the components of the $2.0
billion in charges based on their classification in the Corporation's
consolidated financial statements.
Discontinued Operations
The $2.0 billion in charges recorded in the fourth quarter of 2001 included
charges, net of state income tax benefits, of approximately $1.4 billion related
to certain global telecommunications services businesses held for sale and exit
costs associated with elimination of the administrative infrastructure
supporting the global telecommunications businesses and investments. These
charges, which reduced net earnings for the year by $1.3 billion ($3.09 per
diluted share) are included in discontinued operations in the Corporation's
consolidated statement of operations. The businesses held for sale are as
follows:
o Satellite Services businesses--includes COMSAT Mobile Communications,
COMSAT World Systems and Lockheed Martin Intersputnik. In the first quarter
of 2002, the Corporation completed the sale of COMSAT Mobile
Communications' operations to Telenor. The transaction is not expected to
have a material impact on the Corporation's consolidated results of
operations in 2002.
o COMSAT-International (formerly Enterprise Solutions-International)--
provides telecommunications network services in Latin America, primarily
Argentina and Brazil.
Of the $1.4 billion of charges included in discontinued operations,
approximately $1.2 billion related to impairment of goodwill in the Global
Telecommunications segment. The goodwill was recorded in connection with the
Corporation's acquisition of COMSAT as discussed above. Approximately $170
million of the $1.4 billion related to impairment of certain long-lived assets
employed by foreign businesses held for sale, primarily COMSAT-International.
The remainder of the charges related to costs associated with infrastructure
reductions, including severance and facilities.
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The Corporation elected to early adopt, effective January 1, 2001,
Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." The LMGT operating businesses
identified for divestiture meet the requirements of SFAS No. 144 for treatment
as discontinued operations. Accordingly, the results of operations of these
businesses, as well as the impairment and other charges related to the decision
to exit these businesses, have been classified as discontinued operations in the
Corporation's consolidated statement of operations for all periods presented,
and have been excluded from business segment information. Similarly, the assets
and liabilities of these businesses have been separately identified in the
consolidated balance sheet as being held for sale. The Corporation expects to
complete the sale of these businesses by the end of 2002. Depreciation and
amortization expense are no longer being recorded with respect to the assets of
the businesses in accordance with the Statement. These businesses are recorded
at estimated fair value less cost to sell at December 31, 2001. Changes in the
estimated fair value will be recorded in future periods as determined.
In addition, the Corporation completed the sale of Lockheed Martin IMS
Corporation (IMS), a wholly-owned subsidiary, for $825 million in cash on August
24, 2001. The transaction resulted in a gain, net of state income taxes, of $476
million and increased net earnings by $309 million ($0.71 per diluted share).
The results of IMS' operations for all periods presented, as well as the gain on
the sale, have been reclassified to discontinued operations in accordance with
SFAS No. 144. IMS' assets and liabilities as of December 31, 2000 have been
reclassified as held for sale.
The results of operations and related gains or losses associated with
businesses divested prior to January 1, 2001, the effective date of the
Corporation's adoption of SFAS No. 144, including the divestitures of the
Corporation's Aerospace Electronics Systems (AES) businesses and Lockheed Martin
Control Systems in 2000, have not been reclassified to discontinued operations
in accordance with the Statement.
Other Charges Related to Global Telecommunications
The charges recorded in the fourth quarter of 2001 also included
nonrecurring and unusual charges, net of state income tax benefits, of
approximately $132 million related to commitments to and impairment in the
values of investments in satellite joint ventures, primarily ACeS and Americom
Asia-Pacific, LLC. The Corporation had previously recorded nonrecurring and
unusual charges related to other than temporary declines in the values of these
investments as follows: in the first quarter of 2001, a charge, net of state
income tax benefits, of $100 million was recorded related to Americom
Asia-Pacific; and in the fourth quarter of 2000, a charge, net of state income
tax benefits, of $117 million was recorded related to ACeS (see "Note
9--Investments in Equity Securities" for additional discussion of these
charges).
In addition, the fourth quarter 2001 charges included approximately $43
million for severance, facilities costs and impairment of certain fixed assets
associated with the realigned business units. On a combined basis, these
nonrecurring and unusual charges reduced net earnings for 2001 by $117 million
($0.27 per diluted share).
Write-off of Investment in Astrolink
The Corporation completed funding of its $400 million investment commitment
to Astrolink, a joint venture in which the Corporation holds a 31% interest, in
2001. In October 2001, the Corporation made the decision and so advised
Astrolink that it did not plan to make any additional investment in the joint
venture. In addition to its equity investment, Lockheed Martin's Space Systems
segment had contracts with Astrolink to manufacture four satellites and provide
related launch services, and LMGT had contracts to perform system development
and other services. Those contracts were terminated due to Astrolink's funding
considerations. As part of the $2.0 billion in charges recorded in the fourth
quarter of 2001, the Corporation recognized a nonrecurring and unusual charge,
net of state income tax benefits, of $367 million in other income and expenses
which reflects the other than temporary decline in value of its investment in
Astrolink based on the above circumstances. In addition, charges of
approximately $20 million were recorded in cost of sales for certain other costs
related to Astrolink. On a combined basis, these charges reduced net earnings
for 2001 by approximately $267 million ($0.62 per diluted share). The
Corporation continues to monitor its business relationships related to
Astrolink.
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Other Divestiture Activities
As part of a strategic and organizational review begun in 1999 the
Corporation decided to evaluate the divestiture of certain non-core business
units.
In connection with this review and as described more fully under the
caption "Discontinued Operations" above, the Corporation completed the sale of
IMS on August 24, 2001. The resulting gain increased net earnings by $309
million ($0.71 per diluted share). Net sales for the seven months ended July 31,
2001, the effective date of the divestiture, related to the IMS businesses
totaled approximately $355 million, excluding intercompany sales. This
transaction generated net cash proceeds of approximately $560 million after
related transaction costs and federal and state income tax payments.
In January 2001, the Corporation completed the divestiture of two business
units in the environmental management line of business. The impact of these
divestitures was not material to the Corporation's 2001 consolidated results of
operations, cash flows or financial position due to the effects of nonrecurring
and unusual impairment losses recorded in 2000 and 1999 related to these
business units. Those losses were included in other income and expenses as part
of other portfolio shaping activities in the respective years.
In November 2000, the Corporation sold its Aerospace Electronics Systems
(AES) businesses to BAE SYSTEMS for $1.67 billion in cash (the AES Transaction).
The Corporation recorded a nonrecurring and unusual loss, including state income
taxes, of $598 million related to this transaction which is included in other
income and expenses. The loss reduced net earnings for 2000 by $878 million
($2.18 per diluted share). Although the AES Transaction resulted in the
Corporation recording a pretax loss, it resulted in a gain for tax purposes
primarily because goodwill related to the AES businesses was not included in the
tax basis of the net assets of AES. Accordingly, the Corporation was required to
make state and federal income tax payments associated with the divestiture. The
AES Transaction generated net cash proceeds of approximately $1.2 billion after
related transaction costs and federal and state income tax payments. Net sales
included in the year 2000 related to the AES businesses totaled approximately
$655 million, excluding intercompany sales.
In September 2000, the Corporation sold Lockheed Martin Control Systems
(Control Systems) to BAE SYSTEMS for $510 million in cash. This transaction
resulted in the recognition of a nonrecurring and unusual gain, net of state
income taxes, of $302 million which is reflected in other income and expenses.
The gain increased net earnings for the year ended December 31, 2000 by $180
million ($0.45 per diluted share). Net sales for the first nine months of 2000
related to Control Systems totaled approximately $215 million, excluding
intercompany sales. This transaction generated net cash proceeds of $350 million
after related transaction costs and federal and state income tax payments.
IMS was the final business unit specifically identified for divestiture as
part of the strategic and organizational review initiated in 1999; however, on
an ongoing basis, the Corporation will continue to explore the sale of various
non-core businesses, passive equity investments and surplus real estate. If the
Corporation were to decide to sell any such holdings or real estate, the
resulting gains, if any, would be recorded when the transactions are consummated
and losses, if any, would be recorded when they are probable and estimable. The
Corporation also continues to review its businesses on an ongoing basis to
identify ways to improve organizational effectiveness and performance, and to
focus on its core business strategy.
In September 2000, the Corporation sold approximately one-third of its
interest in Inmarsat for $164 million. The investment in Inmarsat was acquired
as part of the merger with COMSAT. As a result of the transaction, the
Corporation's interest in Inmarsat was reduced from approximately 22% to 14%.
The sale of shares in Inmarsat did not impact the Corporation's results of
operations. The transaction generated net cash proceeds of approximately $115
million after transaction costs and federal and state income tax payments.
In 1997, the Corporation repositioned 10 of its non-core business units as
a new independent company, L-3 Communications Holdings, Inc. (L-3). In 1999, the
Corporation sold its remaining interest in L-3 in two separate transactions. On
a combined basis, these two transactions resulted in a nonrecurring and unusual
gain, net of state income taxes, of $155 million, and increased 1999 net
earnings by $101 million ($0.26 per diluted share).
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In September 1999, the Corporation sold its interest in Airport Group
International Holdings, LLC which resulted in a nonrecurring and unusual gain,
net of state income taxes, of $33 million. In October 1999, the Corporation
exited its commercial 3D graphics business through a series of transactions
which resulted in the sale of its interest in Real 3D, Inc., a majority-owned
subsidiary, and a nonrecurring and unusual gain, net of state income taxes, of
$33 million. On a combined basis, these transactions increased 1999 net earnings
by $43 million ($0.11 per diluted share).
Results of Operations
A significant portion of the Corporation's business is derived from
long-term development and production contracts which are accounted for under the
provisions of the American Institute of Certified Public Accountants' (AICPA)
audit and accounting guide, "Audits of Federal Government Contractors," and the
AICPA's Statement of Position No. 81-1, "Accounting for Performance of
Construction-Type and Certain Production-Type Contracts." The nature of these
contracts and the types of products and services provided are considered in
determining the proper accounting for a given contract. Generally, long-term
fixed-price contracts are recorded on a percentage of completion basis using
units of delivery as the measurement basis for progress toward completion and
revenue recognition; however, certain other long-term fixed-price contracts
which, among other things, provide for the delivery of minimal quantities over a
longer period of time, or require a significant amount of development effort in
relation to total contract value, are recorded upon achievement of performance
milestones or using the cost-to-cost method of accounting where revenue is
recognized based on the ratio of costs incurred to estimated total costs at
completion. Sales under cost-reimbursement-type contracts are recorded as costs
are incurred. As a general rule, sales and profits are recognized earlier in a
production cycle under the cost-to-cost and milestone methods of percentage of
completion accounting. The Corporation has accounting policies in place to
address the complexities involved in accounting for long-term contracts. For
additional information on critical accounting policies in place for recognizing
sales and profits, see the discussion under the caption "Sales and earnings" in
"Note 1--Significant Accounting Policies."
Contract accounting requires significant judgment relative to assessing
risks, estimating contract costs and making related assumptions for schedule and
technical issues. Due to the size and nature of many of the Corporation's
contracts, the estimation of cost at completion is complicated and subject to
numerous variables. Contract costs include material, labor and subcontracting
costs, as well as an allocation of indirect costs. Assumptions must be made
relative to the length of time to complete the contract, as estimated costs also
include anticipated increases in wages and prices for materials. With respect to
contract change orders, claims or similar items, judgment must be used in
estimating related amounts and assessing the potential for realization. Such
amounts are only included in contract value when they can be reliably estimated
and realization is probable. Incentives or penalties and awards applicable to
performance on contracts are considered in estimating sales and profit rates,
and are recorded when there is sufficient information to assess anticipated
performance.
Goods and services provided under long-term development and production
contracts represent a significant portion of the Corporation's business, and
therefore amounts recorded in its consolidated financial statements using
contract accounting methodologies and cost accounting standards are material.
U.S. Government procurement standards are followed relative to assessing the
allowability as well as the allocability of costs. Given the significance of the
judgments and estimation processes described above, it is likely that materially
different amounts could be recorded if different assumptions were used or if
underlying circumstances were to change. The Corporation closely monitors
compliance and consistency of application of its critical accounting policies
related to contract accounting. Reviews of the status of contracts are performed
by business segment personnel through periodic contract status and performance
reviews. When adjustments in contract value or estimated costs are determined,
any changes from prior estimates are generally reflected in earnings in the
current period. In addition, regular and recurring evaluations of contract cost,
scheduling and technical matters are performed by management personnel who are
independent from the business area performing under the contract. Costs incurred
and allocated to contracts with the U.S. Government are closely scrutinized for
compliance with underlying regulatory standards by Lockheed Martin personnel,
and are subject to audit by the Defense Contract Audit Agency.
Since the Corporation's operating cycle is long-term and involves many
types of development and production contracts with varying production delivery
schedules, the results of operations of a particular year, or year-to-year
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comparisons of recorded sales and profits, may not be indicative of future
operating results. The following discussions of comparative results among
periods should be viewed in this context.
[CHART APPEARS HERE]
Net Sales
2001 2000 1999
---- ---- ----
$23,990 $24,541 $24,999
Continuing Operations
The Corporation's consolidated net sales for 2001 were $24.0 billion, a
decrease of two percent compared to 2000. Sales for 2000 were $24.5 billion, a
decrease of two percent compared to 1999. Sales growth in the Aeronautics and
Technology Services segments during 2001 were more than offset by decreases in
the remaining business segments as compared to 2000. In 2000, increased sales in
the Systems Integration, Space Systems and Technology Services segments were
more than offset by lower sales in the Aeronautics segment. Adjusting for
acquisitions and divestitures, sales remained comparable when comparing 2001 to
2000 and 2000 to 1999. The U.S. Government remained the Corporation's largest
customer, accounting for approximately 78 percent of the Corporation's sales for
2001 compared to 72 percent in both 2000 and 1999.
The Corporation's operating profit (earnings from continuing operations
before interest and taxes) for 2001 was $888 million, a decrease of 29 percent
compared to 2000. Operating profit for 2000 was approximately $1.3 billion, a
decrease of 37 percent compared to 1999. The reported amounts for the three
years presented include various nonrecurring and unusual items. The impact of
these items on operating profit, net (loss) earnings and amounts per diluted
share is as follows:
Effects of nonrecurring and unusual items:
(Loss)
Operating Net earnings
(loss) (loss) per diluted
(In millions) profit earnings share
- ------------------------------------------------------------------------------
Year ended December 31, 2001
Continuing operations
Write-off of investment in
Astrolink and related costs $ (387) $(267) $ (0.62)
Write-down of investment
in Loral Space (361) (235) (0.54)
Other charges related to
global telecommunications (176) (117) (0.27)
Gain on sale of surplus real estate 111 72 0.17
Impairment charge related to
Americom Asia-Pacific (100) (65) (0.15)
Other portfolio shaping activities (5) (3) (0.01)
- ----------------------------------------------------------------------------
(918) (615) (1.42)
Discontinued operations--charges
related to discontinued
businesses, net of IMS gain -- (1,027) (2.38)
Extraordinary item--loss on
early extinguishment of debt -- (36) (0.08)
- ----------------------------------------------------------------------------
$ (918) $(1,678) $ (3.88)
============================================================================
Year ended December 31, 2000
Continuing operations
Loss related to AES Transaction $ (598) $ (878) $ (2.18)
Gain on sale of Control Systems 302 180 0.45
Charge related to Globalstar guarantee (141) (91) (0.23)
Impairment charge related to ACeS (117) (77) (0.19)
Partial reversal of CalComp reserve 33 21 0.05
Gain on sales of surplus real estate 28 19 0.05
Other portfolio shaping items (46) (30) (0.07)
- ----------------------------------------------------------------------------
(539) (856) (2.12)
Extraordinary item--loss on early
extinguishment of debt -- (95) (0.24)
- ----------------------------------------------------------------------------
$ (539) $(951) $ (2.36)
============================================================================
Year ended December 31, 1999
Continuing operations
Gain on divestiture of interest in L-3 $ 155 $ 101 $ 0.26
Gain on sales of surplus real estate 57 37 0.10
Partial reversal of CalComp reserve 20 12 0.03
Divestitures and other
portfolio shaping items 17 12 0.03
- ----------------------------------------------------------------------------
249 162 0.42
Cumulative effect of change in
accounting principle -- (355) (0.93)
- ----------------------------------------------------------------------------
$ 249 $(193) $ (0.51)
============================================================================
Excluding the effects of these nonrecurring and unusual items for each
year, operating profit for 2001 would have increased one percent as compared to
2000. Increases in operating profit in the Aeronautics, Space Systems and
Technology Services segments more than offset decreases in operating profit at
the remaining business segments.
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Operating profit increased two percent in 2000 over 1999 after excluding
the effects of nonrecurring and unusual items. Improved results in the
Aeronautics, Systems Integration and Corporate and Other segments more than
offset decreases in operating profit in the Space Systems and Technology
Services segments. Operating profit for 2000 compared to 1999 in the Aeronautics
and Space Systems segments was favorably impacted by the absence in 2000 of
negative adjustments recorded in 1999 on the C-130J airlift aircraft and Titan
IV launch vehicle programs, respectively.
As further discussed in "Note 14--Post-Retirement Benefit Plans," operating
profit in 2001 included approximately $200 million in income related to the
Corporation's qualified defined benefit plans and its retiree medical and life
insurance plans on a combined basis, a decrease of approximately $85 million
over the comparable 2000 amount. The decrease related primarily to the absence
in 2001 of a nonrecurring and unusual curtailment gain associated with
divestiture activities in 2000. The Corporation's earnings will continue to be
affected positively or negatively by the level of income or expense related to
employee benefit plans. As detailed in Note 14, various factors affect the
calculation of the income or expense, including the actual rate of return on
plan assets and the actuarial assumptions that are used to calculate benefit
obligations (e.g., the assumed discount rate, expected future rates of return on
plan assets, future pay increases and the demographics of our workforce). Based
on actuarial assumptions and projected rates of return on plan assets, the
Corporation anticipates that its income related to employee benefit plans will
decline substantially in 2002 and generate a net expense in 2003.
Interest expense for 2001 was $700 million, $219 million lower than the
comparable balance in 2000 as a result of reductions in the Corporation's debt
portfolio. Interest expense for 2000 was $919 million, $110 million higher than
the comparable balance in 1999 primarily as a result of increases in the
Corporation's debt portfolio associated with the merger with COMSAT.
For 2001, the Corporation reported earnings from continuing operations
before extraordinary items and cumulative effect of change in accounting of $79
million ($0.18 per diluted share), compared to a loss in 2000 of $382 million
($0.95 per diluted share). In 1999, the Corporation reported earnings on a
comparable basis of $729 million ($1.90 per diluted share). The reported results
from continuing operations include the impact of the nonrecurring and unusual
items presented above. Excluding such items, earnings from continuing operations
would have been $694 million ($1.60 per diluted share) in 2001, $474 million
($1.17 per diluted share) in 2000 and $567 million ($1.48 per diluted share) in
1999.
Discontinued Operations
The Corporation reported a loss from discontinued operations of $1.1
billion ($2.52 per diluted share) in 2001, a loss of $42 million ($0.10 per
diluted share) in 2000 and income of $8 million ($0.02 per diluted share) in
1999.
Included in the 2001 loss from discontinued operations is a nonrecurring
and unusual after-tax charge of $1.3 billion ($3.09 per diluted share) related
to the Corporation's decision to exit the Global Telecommunications services
business. The 2001 results also include a nonrecurring and unusual after-tax
gain of $309 million ($0.71 per diluted share) from the third quarter 2001 sale
of Lockheed Martin IMS Corporation.
The operating results for the businesses reported in discontinued
operations were a loss of $62 million ($0.14 diluted share) in 2001, a loss of
$42 million ($0.10 per diluted share) in 2000 and income of $8 million ($0.02
per diluted share) in 1999.
Net (Loss) Earnings
[GRAPHIC APPEARS HERE]
Net Earnings (Loss)
2001 2000 1999
---- ---- ----
$(1,046) $(519) $382
632 (a) 432 (a) 575 (a)
a. Excluding the effects of the items presented in the preceding table
entitled "Effects of nonrecurring and unusual items," net earnings for
2001, 2000 and 1999 would have been $632 million, $432 million and $575
million, respectively.
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In 2001, the Corporation's net loss included an extraordinary loss of $36
million (net of a $22 million income tax benefit), or $0.08 per diluted share,
on the early retirement of $117 million of 7% debentures due in 2011. In 2000,
the Corporation's net loss included an extraordinary loss of $95 million (net of
a $61 million income tax benefit), or $0.24 per diluted share, on the early
retirement of approximately $1.9 billion in debt securities.
During 1999, the Corporation adopted the American Institute of Certified
Public Accountants' Statement of Position (SOP) No. 98-5, "Reporting on the
Costs of Start-Up Activities." The adoption of SOP No. 98-5 resulted in the
recognition of a cumulative effect adjustment which reduced net earnings for the
year ended December 31, 1999 by
[GRAPH APPEARS HERE]
Diluted Earnings (Loss) Per Share
2001 2000 1999
---- ---- ----
$(2.42) $(1.29) $0.99
1.46 (a) 1.07 (a) 1.50 (a)
a. Excluding the effects of the items presented in the preceding table
entitled "Effects of nonrecurring and unusual items," diluted earnings per
share for 2001, 2000 and 1999 would have been $1.46, $1.07 and $1.50,
respectively.
$355 million (net of a $227 million income tax benefit), or $0.93 per diluted
share.
The Corporation reported a net loss of $1 billion ($2.42 per diluted share)
in 2001, a net loss of $519 million ($1.29 per diluted share) in 2000 and net
income of $382 million ($0.99 per diluted share) in 1999. Excluding the effects
of the previously mentioned nonrecurring and unusual items, net earnings would
have been $632 million ($1.46 per diluted share) in 2001, $432 million ($1.07
per diluted share) in 2000 and $575 million ($1.50 per diluted share) in 1999.
Discussion of Business Segments
The Corporation operates in four principal business segments: Systems
Integration, Space Systems, Aeronautics and Technology Services. Other
activities of the Corporation fall within the Corporate and Other segment. The
following tables of financial information and related discussions of the results
of operations of the Corporation's business segments have been adjusted to
reflect the elimination of the Corporation's Global Telecommunications segment
discussed previously, and correspond to additional segment information presented
in "Note 17--Information on Industry Segments and Major Customers."
Prior period amounts have been reclassified to conform to the realignment
of the Global Telecommunications businesses and telecommunications equity
investments retained by the Corporation, as previously discussed.
(In millions) 2001 2000 1999
- ----------------------------------------------------------------
Net sales
Systems Integration $ 9,014 $ 9,647 $ 9,570
Space Systems 6,836 7,339 7,285
Aeronautics 5,355 4,885 5,499
Technology Services 2,763 2,649 2,574
Corporate and Other 22 21 71
- ----------------------------------------------------------------
$ 23,990 $ 24,541 $ 24,999
================================================================
(In millions) 2001 2000 1999
- ----------------------------------------------------------------
Operating profit (loss)
Systems Integration $ 836 $ 583 $ 880
Space Systems 405 401 506
Aeronautics 416 343 247
Technology Services 130 82 137
Corporate and Other (899) (158) 227
- ----------------------------------------------------------------
$ 888 $ 1,251 $ 1,997
================================================================
The following table displays the total impact on each segment's operating
profit (loss) of the nonrecurring and unusual items presented earlier for each
of the three years presented:
(In millions) 2001 2000 1999
- ----------------------------------------------------------------
Segment effects of nonrecurring
and unusual items--operating
(loss) profit
Systems Integration $ -- $ (304) $ 13
Space Systems (3) 25 21
Aeronautics -- -- --
Technology Services -- (34) --
Corporate and Other (915) (226) 215
- ----------------------------------------------------------------
$ (918) $ (539) $ 249
================================================================
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In an effort to make the following discussion of significant operating
results of each business segment more understandable, the effects of these
nonrecurring and unusual items have been excluded. The Space Systems and
Aeronautics segments generally include a smaller number of programs that are
substantially larger in terms of sales and operating results than those included
in the other segments. Accordingly, due to the large number of relatively small
programs in the Systems Integration and Technology Services segments, the
discussions of the results of operations of these business segments focus on
lines of business.
Systems Integration
Net sales of the Systems Integration segment declined by seven percent in
2001 compared to 2000. Sales would have increased four percent for 2001 from the
comparable year-ago period had the sales attributable to the segment's Aerospace
Electronic Systems and Controls Systems businesses, which were divested in the
second half of 2000, and the transfer of the Payload Launch Vehicle (PLV)
contract to the Space Systems segment at the start of 2001, been excluded from
the comparisons. Sales increased by $350 million as a result of volume increases
in the segment's Missiles & Air Defense product line primarily due to higher
volumes on certain tactical missile programs and the Theater High Altitude Area
Defense (THAAD) missile program. Naval Electronic and Surveillance Systems sales
in 2001 increased by $220 million over the prior year, primarily due to higher
volumes on surface systems programs, and undersea and radar systems activities.
Sales in the Command, Control, Communications, Computers and Intelligence (C4I)
product line increased slightly year over year. These increases were partially
offset by a $250 million decrease in sales related to volume declines in the
Systems Integration-Owego line of business.
The segment's net sales increased one percent in 2000 as compared to 1999.
Sales increased by $360 million as a result of volume increases in the segment's
Naval Electronic and Surveillance Systems product line, primarily radar systems,
and the Systems Integration-Owego line of business. Sales also increased by $115
million in the segment's Missiles & Air Defense product line, principally due to
the THAAD program's movement into the engineering, manufacturing and development
(EMD) phase. These increases were partially offset by a reduction in sales of
$410 million primarily related to the divestiture of the AES and Control Systems
businesses in 2000.
Operating profit for the segment decreased six percent in 2001 compared to
2000. Operating profit would have increased by six percent for 2001 from the
year-ago period had the operating profit related to the divested Aerospace
Electronic Systems and Controls Systems businesses, as well as the PLV contract
transfer, been excluded from the comparisons. Increased operating profit of $75
million from the sales growth in the segment's Missiles & Air Defense and Naval
Electronic and Surveillance Systems product lines was partially offset by the
volume declines at Systems Integration-Owego.
Operating profit increased two percent in 2000 as compared to 1999. In
2000, the previously mentioned volume increases in the segment's Naval
Electronic and Surveillance Systems product line and Systems Integration-Owego
activities contributed $40 million to the increase in operating profit from
1999. This increase was partially offset by an approximate $20 million decline
in operating profit related to the divestiture of the AES and Control Systems
businesses in 2000. Also during 2000, increases in operating profit attributable
to the THAAD program's movement into the EMD phase, as well as the absence in
2000 of a $15 million penalty recorded on that program in the second quarter of
1999, were offset by declines in operating profit on certain fire control and
sensor programs due to program maturity.
Space Systems
Net sales for the Space Systems segment decreased by seven percent for the
year from the comparable 2000 period. Sales declined by $600 million due to
volume reductions in commercial space activities, by $150 million related to
reduced volume in government launch vehicle activity, primarily due to program
maturities, and by $50 million due to the absence in 2001 of favorable
adjustments recorded on the Titan IV program as discussed in more detail below.
These reductions were partially offset by a combined increase in sales of $315
million related to volume on government satellite programs and ground systems
activities.
Net sales in the Space Systems segment increased by one percent in 2000
compared to 1999. In 2000, sales decreased by $440 million due to volume
declines in government satellite activities, and by $40 million due to decreased
ground systems activities. An additional $140 million decrease related to
reduced volume in government launch vehicle programs. These decreases were
partially offset by $490 million related to increased volume on
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commercial space activities as well as an approximate $50 million increase in
various other space system activities. Year-over-year sales also increased due
to the absence in 2000 of $90 million in negative adjustments recorded during
1999 related to the Titan IV program. These adjustments included the effects of
changes in estimates for award and incentive fees resulting from a second
quarter 1999 Titan IV launch failure, as well as a more conservative assessment
of future program performance. In addition, 2000 sales were also favorably
impacted by an approximate $50 million adjustment recorded in 2000 on the Titan
IV program as a result of contract modifications and improved performance on the
program. The contract modifications, which resulted primarily from the U.S.
Government's Broad Area Review team recommendations, provided for a more
balanced sharing of future risk. The improved performance on the program
resulted from the successful implementation of corrective actions and
initiatives taken since the previously mentioned 1999 Titan IV launch failure.
Space Systems operating profit increased by nine percent as compared to
2000. The segment's 2001 operating profit increased by approximately $70 million
due to the volume increases and improved performance in ground systems,
government satellite programs and other space segment activities. These
increases were partially offset by higher year-over-year losses in Commercial
Space. The commercial launch vehicle business included $60 million in higher
charges for market and pricing pressures when compared to 2000 and a $40 million
loss provision recorded in the first quarter of 2001 for certain commercial
satellite contracts related to schedule and technical issues. These negative
adjustments were somewhat offset by $50 million of favorable contract
adjustments on certain launch vehicle contracts. Additionally, operating profit
was negatively impacted by lower production activities for government launch
vehicles. The year-to-year comparison of operating profit was not affected by
the $50 million favorable Titan IV adjustment recorded in 2000 as discussed
above, due to a $55 million charge related to a more conservative assessment of
government launch vehicle programs that was recorded in the fourth quarter of
2000.
Operating profit for the segment decreased by 22 percent in 2000 compared
to 1999. Continued market and pricing pressures on commercial space programs,
increased investment in certain launch vehicle programs and reduced margins on
commercial satellites decreased 2000 operating profit by $180 million from 1999.
This decrease included charges of $85 million recorded in 2000 on the Atlas
launch vehicle program related to continued market and pricing pressures. In
addition, 2000 operating profit was further reduced by $35 million due to the
impact of the volume declines on government satellite programs mentioned
previously. Consistent with the change in sales, the absence in 2000 of the
negative adjustments recorded during 1999 on the Titan IV program, combined with
the favorable adjustments recorded in 2000 on the same program, had an
approximate $140 million positive impact on 2000 operating profit. The remainder
of the decrease is primarily attributable to an approximate $55 million decrease
in operating profit related to a more conservative assessment of future
performance on government launch vehicle programs.
Aeronautics
Net sales for the Aeronautics segment increased by 10 percent in 2001
compared to 2000. During 2001, sales increased approximately $400 million
primarily due to the initial ramp up on F-22 production and increased
development activities related to international F-16 programs. Volume increases
from F-16 and C-130 support activities also increased sales by approximately
$230 million. These increases were partially offset by declines in sales of $260
million resulting from fewer F-16 and C-130J deliveries in 2001.
Net sales of the Aeronautics segment decreased by 11 percent in 2000
compared to 1999. Approximately 95 percent of the decrease in 2000 sales is
attributable to declines in F-16 and C-130J sales and deliveries. These
decreases more than offset increases in sales related to the F-22 program.
Aeronautics operating profit increased by 21 percent for the year when
compared to the same period of 2000. For the year, operating profit increased by
approximately $115 million due to increased volume and performance on the F-22
program, development activities on international F-16 programs and other
aeronautical programs. This increase was partially offset by a decline in F-16
deliveries. The net change in C-130J deliveries did not impact EBIT for the
comparative periods due to the previously reported suspension of earnings
recognition on the program.
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Operating profit for the segment increased by 39 percent in 2000 compared
to 1999. The current year increase is primarily attributable to the absence in
2000 of a $210 million negative adjustment recorded during the second quarter of
1999 that resulted from changes in estimates related to the C-130J program due
to cost growth and a reduction in production rates. This increase was partially
offset by an approximate $115 million reduction in 2000 operating profit
resulting from the decrease in aircraft sales and deliveries mentioned in the
preceding paragraph.
Technology Services
Net sales for the Technology Services segment increased by four percent in
2001 compared to 2000. Excluding the sales attributable to Lockheed Martin
Energy Technologies and Retech, two business units that were divested in 2000,
and the acquisition of OAO Corporation in December of 2001, sales would have
increased seven percent for the year. Sales increased $190 million primarily due
to increased volume on the segment's government information technology and
aircraft and logistics programs. This growth was partially offset by lower sales
volume of $15 million associated with the segment's energy-related contracts due
to program completions.
Net sales of the Technology Services segment increased by three percent in
2000 as compared to 1999. The increase in 2000 sales is comprised of an
approximate $150 million increase in various federal technology services
programs including the Consolidated Space Operations Contract and the Rapid
Response contract. These increases were partially offset by an approximate $95
million decline in volume on aircraft maintenance and logistics contracts and
certain energy-related contracts due to program completions.
Operating profit for the segment increased by 12 percent for the year
compared to 2000. Absent the earnings from the divested and acquired businesses,
operating profit would have increased 11 percent for the year. Operating profit
increased by approximately $25 million in 2001 from higher volumes in the
segment's government information technology and aircraft maintenance and
logistics contracts. This improvement was somewhat offset by a reduction in
operating profit due to the completion of energy-related contracts.
Operating profit for the segment decreased by 15 percent in 2000 compared
to 1999. The decline in operating profit is attributable directly to a loss of
approximately $40 million incurred in the realigned commercial information
technology lines of business and the impact of the previously mentioned volume
declines on certain energy-related contracts. Somewhat offsetting the decline
was increased operating profit attributable to various federal technology
services programs including the impact of the volume increases discussed above
and increased profitability on certain information services contracts, and
improved performance on certain aircraft maintenance and logistics contracts.
In December 2001, the Corporation completed its acquisition of all of the
outstanding stock of OAO Corporation (OAO), a provider of information technology
solutions to the federal government. OAO will be included in the Technology
Services segment. OAO's revenues for all of 2001 approximated 1% of the
Corporation's 2001 net sales.
The segment has a business unit which provides services to the government
of Argentina, and in which the Corporation's net investment at December 31, 2001
was approximately $25 million. Relative to this business unit, the Corporation
does not expect that the current economic situation in Argentina, including the
devaluation of the Argentine peso, will have a material impact on its results of
operations, cash flows or financial position.
Corporate and Other
Net sales in the Corporate and Other segment were immaterial for 2001 and
2000 due to the reclassification of IMS results of operations to discontinued
operations in connection with its divestiture in July 2001. The decline in net
sales from 1999 was primarily due to reduced volume in the segment's properties
line of business and the absence in 2000 of sales attributable to the
Corporation's commercial graphics company, Real 3D, which was divested in the
fourth quarter of 1999.
Operating profit for the Corporate and Other segment decreased by $52
million when comparing 2001 to 2000. The decline was principally due to lower
equity earnings from investments and an increase in miscellaneous corporate
expenses including stock-based compensation costs. Operating profit for the
segment increased by $56 million in 2000 compared to 1999 mainly due to
increased equity earnings from investments, primarily related to the merger with
COMSAT.
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[GRAPH APPEARS HERE]
Negotiated Backlog
2001 2000 1999
---- ---- ----
$71,269 $55,076 $44,807
Backlog
Total negotiated backlog of $71.3 billion at December 31, 2001 included
both firm orders for the Corporation's products for which funding has been
appropriated by the customer (Congress, in the case of U.S. Government agencies)
and firm orders for which funding has not been appropriated.
The following table shows total backlog by segment at the end of each of
the last three years:
(In millions) 2001 2000 1999
- -------------------------------------------------------------------
Backlog
Systems Integration $ 17,027 $ 16,706 $ 13,971
Space Systems 12,977 15,505 16,508
Aeronautics 36,149 17,570 9,003
Technology Services 5,116 5,295 5,325
- -------------------------------------------------------------------
$ 71,269 $ 55,076 $ 44,807
===================================================================
Systems Integration backlog increased by two percent in 2001 compared to
2000, and by 20 percent in 2000 compared to 1999. The majority of the 2001
increase was attributable to new orders for C4I programs. Increased backlog
associated with the Naval Electronic and Surveillance Systems product line and
various Systems Integration-Owego activities were more than offset by a decline
in orders and increased sales on missiles and air defense systems. The majority
of the 2000 increase was attributable to new orders for missile and air defense
systems, primarily orders received on the THAAD program as a result of that
program's movement into the EMD phase. Increased orders for naval electronic and
surveillance systems and various Systems Integration-Owego activities were
partially offset by the absence of backlog associated with the segment's AES and
Control Systems businesses, which were divested during 2000. The remainder of
the 2000 variance from 1999 was primarily due to sales on existing orders and
decreases in new orders on C4I programs.
Space Systems backlog decreased by 16 percent in 2001 compared to 2000 and
by six percent in 2000 compared to 1999. The decrease in 2001 was primarily
attributable to declines in backlog on commercial space programs due to
decreases in new orders and sales on existing orders. The decrease in commercial
space backlog also includes the effect of terminating the Astrolink satellite
program and launch vehicle contracts. Additional decreases in orders for fleet
ballistic missiles and government launch vehicles were partially offset by
increases in orders for government satellite programs and ground systems. The
decrease in 2000 was primarily attributable to declines in backlog on government
launch vehicles and commercial satellites due to decreases in new orders and
sales on existing orders, respectively. Additional decreases in orders of
government satellite programs were partially offset by an increase in orders for
commercial launch vehicles.
Aeronautics backlog increased by 106 percent in 2001 compared to 2000 and
by 95 percent in 2000 compared to 1999. The 2001 increase is primarily due to
the approximate $19 billion order for the Joint Strike Fighter, or F-35,
aircraft program related to the System Demonstration and Development (SDD) phase
of the program. The SDD phase has a performance period of 10.5 years and
provides for the production of 22 test aircraft. The Low Rate Initial Production
phase of the program is expected to begin in the 2005 to 2006 time frame, with
high rate production planned to begin in the 2012 time frame. The remaining
fluctuation in backlog in 2001 compared to 2000 is due to decreased orders on
C-130 programs offset by increased backlog associated with the F-16 and F-22
programs. The 2000 increase is primarily due to approximately $10.6 billion in
orders related to the F-16 program, including new F-16 contracts with the U.S.
Government, the United Arab Emirates (UAE), Israel, Greece, Singapore and Korea,
collectively. This increase was partially offset by a reduction in backlog for
the F-22 program as a result of increased sales on existing orders.
Technology Services backlog decreased by three percent in 2001 compared to
2000 and by one percent in 2000 compared to 1999. The decrease in 2001 was
mainly attributable to sales on existing orders in the segment's aircraft and
logistics line of business, primarily the Kelly Aviation Center contract, and
sales on existing orders
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for NASA programs, primarily the Consolidated Space Operations Contract. This
decrease was mostly offset by increased orders associated with government
information technology services and the backlog recorded in connection with the
acquisition of OAO Corporation. The decrease in 2000 was primarily associated
with sales on existing federal technology services contracts, principally the
Consolidated Space Operations Contract.
[GRAPHIC APPEARS HERE]
Net Cash Provided By Operating Activities
2001 2000 1999
---- ---- ----
$1,825 $2,016 $1,077
Liquidity and Cash Flows
Operating Activities
Operating activities provided $1.8 billion in cash during 2001, compared to
$2.0 billion and $1.1 billion provided in 2000 and 1999, respectively. The
decrease in cash provided by operations in 2001 compared to 2000 is primarily
attributable to the impact of increased net federal income tax payments
primarily related to the divestiture of non-core businesses. Partially
offsetting this decrease were cash flows from working capital improvements,
primarily inventory reductions, the increase in pretax proceeds from sales of
surplus real estate, distributions from equity investees and increased earnings.
The significant increase in 2000 operating cash flows compared to 1999 was
primarily the result of lower working capital requirements and reduced net
federal income tax payments. Included in operating activities is cash provided
from discontinued operations of $34 million in 2001, $25 million in 2000, and
$14 million in 1999.
Investing Activities
Investing activities provided $139 million in cash during 2001 compared to
$1.8 billion provided in 2000 and $1.6 billion used during 1999. Cash used for
property, plant and equipment expenditures increased 24 percent in 2001 after
having declined 25 percent in 2000. Included in expenditures for property,
plant, and equipment were $74 million in 2001, $58 million in 2000 and $89
million in 1999 related to the discontinued businesses. During 2001, the
Corporation recorded proceeds of $825 million from the sale of its IMS business.
Also in 2001, $192 million of cash was used for additional investments in
affiliated companies, including $140 million to complete the Corporation's
funding commitment to Astrolink. The remainder of the 2001 activity was
attributable to proceeds from the disposal of property and various other
investing activities. The majority of the $3.4 billion change in cash provided
by investing activities in 2000 from the cash used by investing activities in
1999 reflects the Corporation's receipt of proceeds during 2000 from the
divestiture of AES and Control Systems businesses, as well as the sale of a
portion of the Corporation's investment in Inmarsat, which generated
approximately $1.7 billion, $510 million, and $164 million, respectively,
contrasted with the Corporation's disbursement in 1999 of $1.2 billion used to
acquire the initial 49% investment in COMSAT. The remaining fluctuation between
years is primarily attributable to the 1999 receipt of $263 million related to
the sale of the Corporation's interest in L-3 which was partially offset by a
$169 million decrease in 2000 of expenditures for property, plant, and
equipment.
Financing Activities
The Corporation used $2.6 billion in cash for financing activities during
2001 compared to $2.7 billion used and $731 million provided by financing
activities during 2000 and 1999, respectively. During 2001, improved operating
cash flows and cash provided by investing activities allowed the Corporation to
reduce its long-term debt by approximately $2.4 billion. As discussed in more
detail under the caption "Capital Structure and Resources," the reduction in
long-term debt was primarily attributable to the pre-payment of notes issued to
a wholly-owned subsidiary of General Electric Company (GE), payments on
scheduled debt maturities, and the early retirement of certain other debt
instruments. Approximately $89 million of long-term debt will mature in 2002.
The $3.5 billion change in cash used
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by financing activities in 2000 from the cash provided by financing activities
in 1999 reflects the Corporation's issuance of $3.0 billion in long-term debt in
1999 and the $1.0 billion increase in debt retirements in 2000 versus 1999,
partially offset by a $405 million decrease in short-term debt repayments and a
$162 million decrease in dividend payments. The increase in debt retirements was
primarily attributable to the Corporation's completion of tender offers for
certain of its long-term debt securities during the fourth quarter of 2000. The
Corporation used $2.1 billion to consummate the tender offers, resulting in the
early extinguishment of $1.9 billion in long-term debt and an extraordinary loss
of $156 million, or $95 million after tax.
The Corporation paid dividends of $192 million in 2001 compared to $183
million in 2000 and $345 million in 1999.
Other
The Corporation receives advances on certain contracts to finance
inventories. At December 31, 2001, approximately $2.9 billion in advances and
progress payments related to work in process were received from customers and
recorded as a reduction to inventories in the Corporation's consolidated balance
sheet. Also at December 31, 2001, $566 million of customer advances and progress
payments were recorded in receivables as a reduction to unbilled costs and
accrued profits. Approximately $5.0 billion of customer advances and amounts in
excess of costs incurred, which are typically from foreign governments and
commercial customers, were included in current liabilities at the end of 2001.
The Corporation uses "free cash flow" as a measure to evaluate its
performance. The calculation of free cash flow begins with net cash provided by
operating activities from the consolidated statement of cash flows. This amount
is then decreased by expenditures for property, plant and equipment, and
increased by proceeds from the disposal of property, plant and equipment and by
income taxes paid related to divested businesses and investments. Free cash flow
was $2.0 billion for 2001 and $1.8 billion for 2000.
Capital Structure and Resources
Total debt, including short-term borrowings, decreased by approximately
$2.4 billion during 2001 from a balance of $10.0 billion at December 31, 2000.
The decrease was primarily attributable to the pre-payment of $1.26 billion in
notes issued to GE mentioned previously, originally scheduled to mature in
November 2002, payments of $825 million in scheduled debt maturities, the early
redemption of $200 million of 8.125% Monthly Income Preferred Securities (MIPS)
due in 2025, issued by a wholly-owned subsidiary of COMSAT, and the early
retirement of $117 million of 7.0% debentures due in 2011. The Corporation
recorded an extraordinary loss, net of $22 million in income tax benefits, of
$36 million associated with the early retirement of the 7.0% debentures. The
Corporation's long-term debt is primarily in the form of publicly issued,
fixed-rate notes and debentures. At December 31, 2001, the Corporation held cash
and cash equivalents of $912 million, a portion of which will be used to meet
scheduled long-term debt maturities in 2002.
Total stockholders' equity was $6.4 billion at December 31, 2001, a
decrease of $717 million from December 31, 2000. This decrease resulted
primarily from the net loss of $1.0 billion and the payment of dividends of $192
million. The decline was partially offset by employee stock option and ESOP
activities of $394 million and other comprehensive income of $127 million. Other
comprehensive income was largely due to the Corporation's decision to write-down
its investment in Loral Space which resulted in a reclassification of unrealized
losses on Loral Space to the net loss for 2001. As a result of the above
factors, the Corporation's total debt to capitalization ratio decreased from
58.2 percent at December 31, 2000 to 53.8 percent at December 31, 2001.
At the end of 2001, the Corporation had in place a $1.0 billion 1-year
revolving credit facility and a $1.5 billion 5-year revolving credit facility
(the Credit Facilities). No borrowings were outstanding under the Credit
Facilities at December 31, 2001. Borrowings under the Credit Facilities would be
unsecured and bear interest at rates based, at the Corporation's option, on the
Eurodollar rate or a bank Base Rate (as defined). Each bank's obligation to make
loans under the Credit Facilities is subject to, among other things, compliance
by the Corporation with various representations, warranties and covenants,
including, but not limited to, covenants limiting the ability of the Corporation
and certain of its subsidiaries to encumber their assets and a covenant not to
exceed a maximum leverage ratio. The Credit Facilities replaced a $3.5 billion
revolving credit facility which expired in December 2001.
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The Corporation has agreements in place with certain banking institutions
which provide for the issuance of commercial paper. There were no commercial
paper borrowings outstanding at December 31, 2001. If the Corporation were to
issue commercial paper, such borrowings would be supported by the Credit
Facilities.
The Corporation has an effective shelf registration statement on file with
the Securities and Exchange Commission to provide for the issuance of up to $1
billion in debt securities. Were the Corporation to issue debt securities under
this shelf registration, it would expect to use the net proceeds for general
corporate purposes. These purposes may include repayment of other debt, working
capital needs, capital expenditures, acquisitions and any other general
corporate purpose.
The Corporation actively seeks to finance its business in a manner that
preserves financial flexibility while minimizing borrowing costs to the extent
practicable. The Corporation's management continually reviews changes in
financial, market and economic conditions to manage the types, amounts and
maturities of the Corporation's indebtedness. Periodically, the Corporation may
refinance existing indebtedness, vary its mix of variable rate and fixed rate
debt, or seek alternative financing sources for its cash and operational needs.
Cash and cash equivalents (including temporary investments), internally
generated cash flow from operations and other available financing resources,
including those described above, are expected to be sufficient to meet
anticipated operating, capital expenditure and debt service requirements, and
discretionary investment needs, during the next twelve months. In addition to
the businesses held for sale discussed previously and consistent with the
Corporation's desire to generate cash to reduce debt and invest in its core
businesses, management anticipates that, subject to prevailing financial, market
and economic conditions, the Corporation will continue to explore the sale of
non-core businesses, passive equity investments and surplus real estate.
At December 31, 2001, the Corporation had contractual commitments to repay
debt (including capital lease obligations), and to make payments under operating
leases. Generally, the Corporation's long-term debt obligations are subject to,
among other things, compliance with certain covenants, including, but not
limited to, covenants limiting the ability of the Corporation and certain of its
subsidiaries to encumber their assets. Payments due under these long-term
obligations are as follows:
Payments Due by Period
------------------------------------------------
Less
than 1 1-3 4-5 After 5
(In millions) Total year years years years
- -------------------------------------------------------------------------
Long-term debt and
capital lease
obligations $ 7,511 $ 89 $ 922 $ 795 $ 5,705
Operating lease
commitments(a) 855 139 254 220 242
- -------------------------------------------------------------------------
Total contractual
cash obligations $ 8,366 $ 228 $ 1,176 $ 1,015 $ 5,947
(a) Amounts include future payments related to a leasing arrangement with a
state government authority for Atlas V launch facilities. Total payments
over the 10-year term of the lease are expected to be approximately $320
million. Lease payments are expected to begin in the second half of 2002.
Amounts exclude lease commitments related to discontinued operations, as
such commitments are expected to be transferred upon the sale of the
discontinued businesses.
The Corporation has entered into standby letter of credit agreements and
other arrangements with financial institutions and customers primarily relating
to the guarantee of future performance on certain contracts to provide products
and services to customers. At December 31, 2001, the Corporation had contingent
liabilities on outstanding letters of credit, guarantees and other arrangements,
as follows:
Commitment Expiration per Period
----------------------------------------------
Total Less
Commit- than 1 1-3 4-5 After 5
(In millions) ment year years years years
- ----------------------------------------------------------------------
Surety bonds(a) $ 425 $ 247 $ 117 $ 61 $ --
Standby letters
of credit(a) 307 192 40 64 11
Guarantees 167 15 152 -- --
- ----------------------------------------------------------------------
Total commitments $ 899 $ 454 $ 309 $ 125 $ 11
(a) Approximately $118 million of surety bonds in the "less than 1 year" period,
and approximately $127 million and $8 million of standby letters of credit
in the "less than 1 year" and "1-3 year" periods, respectively, are
expected to automatically renew for additional one to two year periods
until completion of the underlying contractual obligation.
The Corporation has issued standby letters of credit and surety bonds
totaling $3.9 billion related to advances received from customers and/or to
secure the Corporation's performance under long-term contracts. Amounts included
in the table above totaling $732 million are those amounts over and above
advances received from customers
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which are recorded in the consolidated balance sheet at December 31, 2001 as
either offsets against "Inventories" or in "Customer advances and amounts in
excess of costs incurred." Of the $3.2 billion recorded in the consolidated
balance sheet, $2 billion relates to a standby letter of credit to secure
advance payments received under an F-16 contract from an international customer.
This letter of credit is available for draw down only in the event of the
Corporation's nonperformance. Similar to the letter of credit supporting the
F-16 contract, letters of credit and surety bonds for other contracts are
available for draw down only in the event of the Corporation's nonperformance.
The Corporation satisfied its contractual obligation with respect to its
guarantee of certain indebtedness of Globalstar, L.P. (Globalstar) with a net
payment of $150 million on June 30, 2000 to repay a portion of Globalstar's
borrowings under a revolving credit agreement. This payment resulted in the
Corporation recording a nonrecurring and unusual charge, net of state income tax
benefits, of approximately $141 million in 2000 which reduced net earnings for
the year by $91 million, or $0.23 per diluted share (see "Note 10--Debt" for
further discussion). The Corporation has no remaining guarantees related to
Globalstar. On February 15, 2002, Globalstar and certain of its affiliates filed
a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code.
The Corporation continues to guarantee up to $150 million in borrowings of
Space Imaging LLC (Space Imaging), a joint venture in which it holds a 46
percent ownership interest. The amount of borrowings outstanding as of December
31, 2001 for which Lockheed Martin was guarantor was approximately $140 million.
This amount is included in the amounts related to guarantees included in the
table above. The Corporation's investment in Space Imaging is accounted for
under the equity method of accounting. At December 31, 2001, the Corporation's
investment in and receivables from Space Imaging amounted to approximately $111
million. Space Imaging is pursuing its business plan, including assessments
relative to future investment in replacement satellites and related financing
requirements, and Lockheed Martin, as an investor and partner, is working with
its other partners and Space Imaging in this regard.
Effective March 31, 2000, the Corporation converted its 45.9 million shares
of Loral Space & Communications Ltd. (Loral Space) Series A Preferred Stock into
an equal number of shares of Loral Space common stock in preparation for
divestiture of the shares. Due to the market price of Loral Space stock and the
potential impact of underlying market and industry conditions on Loral Space's
ability to execute its current business plans, the Corporation recorded a
nonrecurring and unusual charge, net of state income tax benefits, of $361
million in the third quarter of 2001 related to its investment in Loral Space.
The charge reduced net earnings by $235 million ($0.54 per diluted share).
Realization of the Corporation's investments in equity securities, including
those discussed above as well as the global telecommunications equity
investments expected to be monetized mentioned previously, may be affected by
the investee's ability to obtain adequate funding and execute its business
plans, general market conditions, industry considerations specific to the
investee's business, and/or other factors. The inability of an investee to
obtain future funding or successfully execute its business plan could adversely
affect the Corporation's earnings in the periods affected by those events.
Environmental Matters
The Corporation records appropriate financial statement accruals for
environmental issues in the period in which it is probable that a liability has
been incurred and the amounts can be reasonably estimated (see related
discussion in "Note 1--Significant Accounting Policies" under the caption
"Environmental matters"). Significant judgment is required in developing
assumptions and estimating costs to be incurred for environmental remediation
activities due to, among other factors, the complexity of environmental
regulations, remediation technologies and agreements among Potentially
Responsible Parties (PRPs) to share in remediation efforts as discussed below.
The Corporation enters into agreements (e.g., administrative orders, consent
decrees) which must be fully analyzed to determine the extent of its obligation.
The agreements generally cover several years which makes compliance cost
estimation more judgmental due, for example, to changing technologies.
Management must assess the type of technology to be used to accomplish the
remediation and continually evolving regulatory environmental standards in
evaluating costs associated with these sites. These factors are considered in
management's estimates of the timing and amount of any future costs that may be
necessary for remedial actions. Given the level of judgments and estimation
which must occur as described above, it is likely that materially different
amounts could be recorded if different assumptions were used or if underlying
circumstances were to change (e.g., a significant change in environmental
standards).
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As more fully described in "Note 16--Commitments and Contingencies," the
Corporation is responding to three administrative orders issued by the
California Regional Water Quality Control Board (the Regional Board) in
connection with its former facilities in Redlands, California. The Corporation
estimates that expenditures required to implement work currently approved by the
Regional Board related to the Redlands facilities will be approximately $85
million. In addition, the Corporation is coordinating with the U.S. Air Force,
which is working with the aerospace and defense industry to conduct preliminary
studies of the potential health effects of perchlorate exposure associated with
several sites across the country, including the Redlands site. The results of
these studies are intended to assist the Corporation in determining its ultimate
clean-up obligation, if any, with respect to perchlorates. In January 2002, the
State of California reduced its provisional standard for perchlorate
concentration in water from 18 parts per billion (ppb) to four ppb. This
provisional standard may be used by the State in providing guidelines to water
purveyors; however, until such time as it is formally adopted after a public
notice and comment period, it is not a legally enforceable standard. If formally
adopted as a regulation, this change would lead to increased clean-up costs for
the Corporation related to the Redlands site.
Also as described in Note 16, since 1990, the Corporation has been
responding to various consent decrees and orders relating to soil and regional
groundwater contamination in the San Fernando Valley (including the cities of
Burbank and Glendale) associated with the Corporation's former operations in
Burbank, California. Under an agreement reached with the U.S. Government and
filed with the U.S. District Court in January 2000 (the Agreement), an amount
equal to approximately 50 percent of future expenditures for certain remediation
activities will be reimbursed by the U.S. Government as a responsible party
under the Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA). The Corporation estimates that total expenditures required over the
remaining terms of the consent decrees and orders related to the Burbank and
Glendale sites, net of the effects of the Agreement, will be approximately $50
million.
The Corporation is a party to various other proceedings and potential
proceedings related to environmental clean-up issues, including matters at
various sites where it has been designated a PRP by the EPA or by a state
agency. In the event the Corporation is ultimately found to have liability at
those sites where it has been designated a PRP, it anticipates that the actual
burden for the costs of remediation will be shared with other liable PRPs.
Generally, PRPs that are ultimately determined to be responsible parties are
strictly liable for site clean-up 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 was 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.
In addition to the matters with respect to the Redlands and Burbank
properties and the city of Glendale described above, the Corporation has accrued
approximately $165 million at December 31, 2001 for other matters in which an
estimate of financial exposure could be determined. Management believes that it
is unlikely that any additional liability the Corporation may incur for known
environmental issues would have a material adverse effect on its consolidated
results of operations or financial position.
Also as more fully described in Note 16, the Corporation is continuing to
pursue recovery of a significant portion of the unanticipated costs incurred in
connection with the $180 million fixed-price contract with the U.S. Department
of Energy (DoE) for the remediation of waste found in Pit 9. The Corporation has
been unsuccessful to date in reaching agreements with the DoE on cost recovery
or other contract restructuring matters. In 1998, the DoE terminated the Pit 9
contract for default and filed suit against the Corporation seeking recovery of
approximately $54 million previously paid to the Corporation under the contract.
The Corporation is defending this action while continuing with its efforts to
resolve the dispute through non-litigation means.
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Other Matters
The Corporation's primary exposure to market risk relates to interest rates
and, to a lesser extent, foreign currency exchange rates. The Corporation's
financial instruments which are subject to interest rate risk principally
include commercial paper and fixed rate long-term debt. At December 31, 2001,
the Corporation had no commercial paper outstanding. The Corporation's long-term
debt obligations are generally not callable until maturity. The Corporation uses
interest rate swaps to manage its exposure to fixed and variable interest rates.
At year-end 2001, the Corporation had such instruments in place to swap fixed
interest rates on approximately $670 million of its long-term debt for variable
interest rates based on LIBOR. The interest rate swap agreements are designated
as effective hedges of the fair value of the underlying fixed rate debt
instruments (see the discussion under the caption "Derivative financial
instruments" in "Note 1--Significant Accounting Policies"). At December 31,
2001, the fair values of interest rate swap agreements outstanding were not
material. The amounts of gains and losses from changes in the fair values of the
swap agreements were entirely offset by those from changes in the fair value of
the associated debt obligations. The interest rate swaps create a market
exposure to changes in the LIBOR rate. To the extent that the LIBOR index upon
which the swaps are based increases by 1%, the Corporation's interest expense
would increase by $6.7 million on a pretax basis. A decline in the LIBOR index
of 1% would lower interest expense by a like amount. Changes in swap rates would
affect the market value of the agreements, but such changes in value would be
offset by changes in value of the underlying debt obligations. A 1% rise in swap
rates from those prevailing at December 31, 2001 would result in a decrease in
market value of approximately $12 million. A 1% decline would increase the
market value by a like amount. In January 2002, the Corporation entered into
additional interest rate swap agreements to swap fixed interest rates for
variable rates on approximately $250 million of its long-term debt.
The Corporation uses forward exchange contracts to manage its exposure to
fluctuations in foreign exchange rates. These contracts are designated as
qualifying hedges of the cash flows associated with firm commitments or specific
anticipated transactions, and related gains and losses on the contracts are
recognized in income when the hedged transaction occurs. Effective January 1,
2001, the Corporation began accounting for these contracts under the provisions
of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
as amended. At December 31, 2001, the fair value of forward exchange contracts
outstanding, as well as the amounts of gains and losses recorded during the year
then ended, were not material. The Corporation does not hold or issue derivative
financial instruments for trading purposes.
The Corporation adopted SFAS No. 142, "Accounting for Goodwill and Other
Intangible Assets," as of January 1, 2002. Among other things, the Statement
prohibits the amortization of goodwill and sets forth a new methodology for
periodically assessing and, if warranted, recording impairment of goodwill. In
connection with the impairment provisions of the new rules, the Corporation has
completed the initial step of the goodwill impairment test and has concluded
that no adjustment to the balance of goodwill at the date of adoption is
required. In addition, the Corporation reassessed the estimated remaining useful
lives of other intangible assets as part of its adoption of the Statement. As a
result of that review, the estimated useful life of the intangible asset related
to the F-16 fighter aircraft program has been extended. This change is expected
to decrease annual amortization expense associated with that intangible asset by
approximately $30 million on a pretax basis. If the Statement had been adopted
at the beginning of 2001, the extension of the estimated useful life of that
intangible asset and the absence of goodwill amortization would have increased
earnings from continuing operations before extraordinary item by approximately
$240 million ($0.55 per diluted share).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Management's Discussion and Analysis of Financial Condition and Results of
Operations, Other Matters immediately above on this page, and Derivative
financial instruments in Note 1 - Significant Accounting Policies of the Notes
to Consolidated Financial Statements on page 57 this Form 10-K.
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ITEM 8. FINANCIAL STATEMETNS AND SUPPLEMENTARY DATA
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
Lockheed Martin Corporation
- --------------------------------------------------------------------------------
The management of Lockheed Martin prepared and is responsible for the
consolidated financial statements and all related financial information
contained in this Annual Report. The consolidated financial statements, which
include amounts based on estimates and judgments, have been prepared in
accordance with accounting principles generally accepted in the United States.
In recognition of its responsibility for the integrity and objectivity of
data in the financial statements, the Corporation maintains a system of internal
accounting controls designed and intended to provide reasonable assurance, based
on an appropriate cost to benefit relationship, that assets are safeguarded and
transactions are properly executed and recorded. An environment that provides
for an appropriate level of control consciousness is maintained and monitored
and includes examinations by an internal audit staff and by the independent
auditors in connection with their reviews of interim financial information and
their annual audit.
Essential to the Corporation's internal control system is management's
dedication to the highest standards of integrity, ethics and social
responsibility. In connection therewith, management has issued the Code of
Ethics and Business Conduct and written policy statements that cover, among
other topics, environmental protection, potentially conflicting outside
interests of employees, proper business practices, and adherence to high
standards of conduct and practices in dealings with customers, including the
U.S. Government. The importance of ethical behavior is regularly communicated to
all employees through the distribution of the Code of Ethics and Business
Conduct, and through ongoing education and review programs designed to create a
strong compliance environment.
The Audit and Ethics Committee of the Board of Directors is composed of six
outside directors. This Committee meets periodically with the independent
auditors, internal auditors and management to review their activities. Both the
independent auditors and the internal auditors have unrestricted access to meet
with members of the Audit and Ethics Committee, with or without management
representatives present.
The Audit and Ethics Committee recommends to the Board of Directors the
selection of the independent auditors, which is then submitted to the
stockholders of the Corporation for ratification. The consolidated financial
statements included in this Annual Report have been audited by Ernst & Young
LLP, whose report follows.
/s/ Christopher E. Kubasik
Christopher E. Kubasik
Senior Vice President and
Chief Financial Officer
/s/ Rajeev Bhalla
Rajeev Bhalla
Vice President and Controller
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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Lockheed Martin Corporation
- --------------------------------------------------------------------------------
Board of Directors and Stockholders
Lockheed Martin Corporation
We have audited the accompanying consolidated balance sheet of Lockheed
Martin Corporation as of December 31, 2001 and 2000, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Lockheed Martin Corporation at December 31, 2001 and 2000, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States.
As discussed in Note 1 of the Notes to Consolidated Financial Statements,
in 2001 the Corporation adopted Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets," and in
1999 adopted the provisions of the American Institute of Certified Public
Accountants' Statement of Position No. 98-5, "Reporting on the Costs of Start-Up
Activities."
/s/ Ernst & Young LLP
McLean, Virginia
January 21, 2002
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CONSOLIDATED STATEMENT OF OPERATIONS
Lockheed Martin Corporation
- --------------------------------------------------------------------------------
Year ended December 31,
(In millions, except per share data) 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net sales $ 23,990 $ 24,541 $ 24,999
Cost of sales 22,447 22,881 23,346
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Earnings from operations 1,543 1,660 1,653
Other income and expenses, net (655) (409) 344
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888 1,251 1,997
Interest expense 700 919 809
- ---------------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before income taxes,
extraordinary items and cumulative effect of change in accounting 188 332 1,188
Income tax expense 109 714 459
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Earnings (loss) from continuing operations before extraordinary items
and cumulative effect of change in accounting 79 (382) 729
Discontinued operations (1,089) (42) 8
Extraordinary loss on early extinguishments of debt (36) (95) --
Cumulative effect of change in accounting -- -- (355)
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Net (loss) earnings $ (1,046) $ (519) $ 382
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Earnings (loss) per common share:
Basic:
Continuing operations before extraordinary items and
cumulative effect of change in accounting $ 0.18 $ (0.95) $ 1.91
Discontinued operations (2.55) (0.10) 0.02
Extraordinary loss on early extinguishments of debt (0.08) (0.24) --
Cumulative effect of change in accounting -- -- (0.93)
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$ (2.45) $ (1.29) $ 1.00
Diluted:
Continuing operations before extraordinary items and
cumulative effect of change in accounting $ 0.18 $ (0.95) $ 1.90
Discontinued operations (2.52) (0.10) 0.02
Extraordinary loss on early extinguishments of debt (0.08) (0.24) --
Cumulative effect of change in accounting -- -- (0.93)
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$ (2.42) $ (1.29) $ 0.99
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See accompanying Notes to Consolidated Financial Statements.
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CONSOLIDATED STATEMENT OF CASH FLOWS
Lockheed Martin Corporation
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Year ended December 31,
(In millions) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------
Operating Activities
Earnings (loss) from continuing operations before extraordinary
item and cumulative effect of change in accounting $ 79 $ (382) $ 729
Adjustments to reconcile earnings (loss) from continuing operations
before extraordinary item and cumulative effect of change in
accounting to net cash provided by operating activities:
(Loss) earnings from discontinued operations (1,089) (42) 8
Depreciation and amortization 425 464 514
Amortization of goodwill and other intangible assets 398 423 438
Deferred federal income taxes (118) (96) 299
Net charges related to discontinued operations,
write-off of Astrolink and other charges 1,511 -- --
Write-down of other investments 476 125 --
Loss related to AES Transaction -- 547 --
Gain on sale of Control Systems business -- (325) --
Changes in operating assets and liabilities:
Receivables (34) 239 146
Inventories 651 (194) (386)
Customer advances and amounts in excess of costs incurred 318 352 353
Income taxes (456) 522 (284)
Other (336) 383 (740)
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Net cash provided by operating activities 1,825 2,016 1,077
- -------------------------------------------------------------------------------------------------------------
Investing Activities
Expenditures for property, plant and equipment (619) (500) (669)
Sale of IMS 825 -- --
Investments in affiliated companies (192) (257) (170)
AES Transaction -- 1,670 --
Sale of Control Systems business -- 510 --
Sale of shares of Inmarsat -- 164 --
COMSAT tender offer -- -- (1,203)
Sale of interest in L-3 -- -- 263
Other 125 175 141
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Net cash provided by (used for) investing activities 139 1,762 (1,638)
- -------------------------------------------------------------------------------------------------------------
Financing Activities
Net decrease in short-term borrowings (12) (463) (868)
Increases in long-term debt -- -- 2,994
Repayments and early extinguishment of long-term debt (2,566) (2,096) (1,067)
Issuances of common stock 213 14 17
Common stock dividends (192) (183) (345)
- -------------------------------------------------------------------------------------------------------------
Net cash (used for) provided by financing activities (2,557) (2,728) 731
- -------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (593) 1,050 170
Cash and cash equivalents at beginning of year 1,505 455 285
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Cash and cash equivalents at end of year $ 912 $ 1,505 $ 455
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See accompanying Notes to Consolidated Financial Statements.
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CONSOLIDATED BALANCE SHEET
Lockheed Martin Corporation
- --------------------------------------------------------------------------------
December 31,
(In millions) 2001 2000
- ----------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 912 $ 1,505
Receivables 4,049 3,986
Inventories 3,140 3,805
Deferred income taxes 1,566 1,213
Assets of businesses held for sale 638 2,332
Other current assets 473 498
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Total current assets 10,778 13,339
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Property, plant and equipment, net 2,991 2,941
Investments in equity securities 1,884 2,433
Intangible assets related to contracts and programs acquired 939 1,073
Goodwill 7,371 7,479
Prepaid pension cost 2,081 1,794
Other assets 1,610 1,367
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$27,654 $30,426
- ----------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,419 $ 1,106
Customer advances and amounts in excess of costs incurred 5,002 4,697
Salaries, benefits and payroll taxes 1,100 978
Income taxes 63 519
Current maturities of long-term debt 89 882
Liabilities of businesses held for sale 387 467
Other current liabilities 1,629 1,653
- --------------------------------------------------------------------------------------------------------
Total current liabilities 9,689 10,302
Long-term debt 7,422 9,065
Post-retirement benefit liabilities 1,565 1,647
Deferred income taxes 992 790
Other liabilities 1,543 1,462
Stockholders' equity:
Common stock, $1 par value per share 441 431
Additional paid-in capital 2,142 1,789
Retained earnings 3,961 5,199
Unearned ESOP shares (84) (115)
Accumulated other comprehensive loss (17) (144)
- ----------------------------------------------------------------------------------------------------------
Total stockholders' equity 6,443 7,160
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$27,654 $30,426
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See accompanying Notes to Consolidated Financial Statements.
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CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Lockheed Martin Corporation
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Accumulated
Additional Unearned Other Total
Common Paid-In Retained ESOP Comprehensive Stockholders' Comprehensive
(In millions, except per share data) Stock Capital Earnings Shares Loss Equity Income (Loss)
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 $ 393 $ 70 $ 5,864 $ (182) $ (8) $ 6,137
Net earnings -- -- 382 -- -- 382 $ 382
Common stock dividends declared
($0.88 per share) -- -- (345) -- -- (345) --
Stock awards and options,
and ESOP activity 5 152 -- 32 -- 189 --
Other comprehensive loss -- -- -- -- (2) (2) (2)
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 398 222 5,901 (150) (10) 6,361 $ 380
Net loss -- -- (519) -- -- (519) $ (519)
Common stock dividends declared
($0.44 per share) -- -- (183) -- -- (183) --
Stock awards and options
and ESOP activity 6 177 -- 35 -- 218 --
Stock issued in COMSAT Merger 27 1,319 -- -- -- 1,346 --
COMSAT stock options assumed -- 71 -- -- -- 71 --
Other comprehensive loss:
Net unrealized loss from
available-for-sale investments -- -- -- -- (129) (129) (129)
Other -- -- -- -- (5) (5) (5)
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 431 1,789 5,199 (115) (144) 7,160 $ (653)
Net loss -- -- (1,046) -- -- (1,046) $ (1,046)
Common stock dividends declared
($0.44 per share) -- -- (192) -- -- (192) --
Stock awards and options,
and ESOP activity 10 353 -- 31 -- 394 --
Other comprehensive income (loss):
Net unrealized gain from
available-for-sale investments -- -- -- -- 23 23 23
Loral Space reclassification -- -- -- -- 151 151 151
adjustment
Minimum pension liability -- -- -- -- (33) (33) (33)
Other -- -- -- -- (14) (14) (14)
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 $ 441 $ 2,142 $ 3,961 $ (84) $ (17) $ 6,443 $ (919)
- -------------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
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Page 54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lockheed Martin Corporation
December 31, 2001
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Note 1--Significant Accounting Policies
Organization--Lockheed Martin Corporation (Lockheed Martin or the Corporation)
is engaged in the conception, research, design, development, manufacture,
integration and operation of advanced technology systems, products and services.
Its products and services range from aircraft, spacecraft and launch vehicles to
missiles, electronics and information systems. The Corporation serves customers
in both domestic and international defense and commercial markets, with its
principal customers being agencies of the U.S. Government.
Basis of consolidation and use of estimates--The consolidated financial
statements include the accounts of wholly-owned subsidiaries and majority-owned
entities which the Corporation controls. Intercompany balances and transactions
have been eliminated in consolidation. The preparation of consolidated financial
statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions, including
estimates of anticipated contract costs and revenues utilized in the earnings
recognition process, that affect the reported amounts in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Classifications--Receivables and inventories are primarily attributable to
long-term contracts or programs in progress for which the related operating
cycles are longer than one year. In accordance with industry practice, these
items are included in current assets. Certain amounts for prior years have been
reclassified to conform with the 2001 presentation.
Cash and cash equivalents--Cash equivalents are generally composed of highly
liquid instruments with maturities of three months or less when purchased. Due
to the short maturity of these instruments, carrying value on the Corporation's
consolidated balance sheet approximates fair value.
Receivables--Receivables consist of amounts billed and currently due from
customers, and include unbilled costs and accrued profits primarily related to
revenues on long-term contracts that have been recognized for accounting
purposes but not yet billed to customers. As such revenues are recognized,
appropriate amounts of customer advances and progress payments are reflected as
an offset to the related accounts receivable balance.
Inventories--Inventories are stated at the lower of cost or estimated net
realizable value. Costs on long-term contracts and programs in progress
represent recoverable costs incurred for production, allocable operating
overhead and, where appropriate, research and development and general and
administrative expenses. Pursuant to contract provisions, agencies of the U.S.
Government and certain other customers have title to, or a security interest in,
inventories related to such contracts as a result of advances and progress
payments. Such advances and progress payments are reflected as an offset against
the related inventory balances. General and administrative expenses related to
commercial products and services provided essentially under commercial terms and
conditions are expensed as incurred. Costs of other product and supply
inventories are principally determined by the first-in, first-out or average
cost methods.
Property, plant and equipment--Property, plant and equipment are carried
principally at cost. Depreciation is provided on plant and equipment generally
using accelerated methods during the first half of the estimated useful lives of
the assets; thereafter, straight-line depreciation generally is used. Estimated
useful lives generally range from 10 years to 40 years for buildings and 5 years
to 15 years for machinery and equipment.
Investments in equity securities--Investments in equity securities include the
Corporation's ownership interests in affiliated companies accounted for under
the equity method of accounting. Under this method of accounting, which
generally applies to investments that represent a 20 to 50 percent ownership of
the equity securities of the investees, the Corporation's share of the earnings
or losses of the affiliated companies is included in other income and expenses.
The Corporation recognizes currently gains or losses arising from issuances of
stock by wholly-owned or majority-owned subsidiaries, or by equity method
investees. These gains or losses are also included in other income and expenses.
Investments in equity securities also include the Corporation's ownership
interests in companies in which its investment represents less than 20 percent.
If classified as available for sale, these investments are accounted for at fair
value, with unrealized gains and losses recorded in other comprehensive income,
in accordance with Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
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Otherwise, these investments are generally accounted for under the cost method
of accounting.
Goodwill and other intangible assets--Intangible assets related to contracts and
programs acquired are amortized over the estimated periods of benefit (15 years
or less) and are displayed in the consolidated balance sheet net of accumulated
amortization of $1,239 million and $1,085 million at December 31, 2001 and 2000,
respectively. In periods prior to the adoption of SFAS No. 142 (see discussion
under the caption "New accounting pronouncements" in this Note), goodwill was
amortized ratably over appropriate periods, generally 30 to 40 years; however,
beginning January 1, 2002, goodwill will no longer be amortized. Goodwill is
displayed on the consolidated balance sheet net of accumulated amortization of
$1,380 million and $1,160 million at December 31, 2001 and 2000, respectively.
Under SFAS No. 142, goodwill will be evaluated for potential impairment annually
by comparing the fair value of a reporting unit to its carrying value, including
goodwill recorded by the reporting unit. If the carrying value exceeds the fair
value, impairment is measured by comparing the derived fair value of goodwill to
its carrying value, and any impairment determined is recorded in the current
period.
Customer advances and amounts in excess of costs incurred-- The Corporation
receives advances and progress payments from customers in excess of costs
incurred on certain contracts, including contracts with agencies of the U.S.
Government. Such advances and progress payments, other than those reflected as
an offset to accounts receivable or inventories as discussed above, are
classified as current liabilities.
Environmental matters--The Corporation records a liability for environmental
matters when it is probable that a liability has been incurred and the amount
can be reasonably estimated. A substantial portion of these costs are expected
to be reflected in sales and cost of sales pursuant to U.S. Government agreement
or regulation. At the time a liability is recorded for future environmental
costs, an asset is recorded for estimated future recovery considered probable
through the pricing of products and services to agencies of the U.S. Government.
The portion of those costs expected to be allocated to commercial business is
reflected in cost of sales at the time the liability is established.
Sales and earnings--Sales and anticipated profits under long-term fixed-price
production contracts are recorded on a percentage of completion basis, generally
using units of delivery as the measurement basis for effort accomplished.
Estimated contract profits are taken into earnings in proportion to recorded
sales. Sales under certain long-term fixed-price contracts which, among other
things, provide for the delivery of minimal quantities or require a significant
amount of development effort in relation to total contract value, are recorded
upon achievement of performance milestones or using the cost-to-cost method of
accounting where sales and profits are recorded based on the ratio of costs
incurred to estimated total costs at completion.
Sales under cost-reimbursement-type contracts are recorded as costs are
incurred. Applicable estimated profits are included in earnings in the
proportion that incurred costs bear to total estimated costs. Sales of products
and services provided essentially under commercial terms and conditions are
recorded upon shipment or completion of specified tasks.
Amounts representing contract change orders, claims or other items are
included in sales only when they can be reliably estimated and realization is
probable. Incentives or penalties and awards applicable to performance on
contracts are considered in estimating sales and profit rates, and are recorded
when there is sufficient information to assess anticipated contract performance.
Incentive provisions which increase or decrease earnings based solely on a
single significant event are generally not recognized until the event occurs.
When adjustments in contract value or estimated costs are determined, any
changes from prior estimates are generally reflected in earnings in the current
period. Anticipated losses on contracts are charged to earnings when identified.
Research and development and similar costs--Corporation-sponsored research and
development costs primarily include independent research and development and bid
and proposal efforts related to government products and services. Except for
certain arrangements described below, these costs are generally included as part
of the general and administrative costs that are allocated among all contracts
and programs in progress under U.S. Government contractual arrangements.
Corporation-sponsored product development costs not otherwise allocable are
charged to expense when incurred. Under certain arrangements in
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which a customer shares in product development costs, the Corporation's portion
of such unreimbursed costs is expensed as incurred. Customer-sponsored research
and development costs incurred pursuant to contracts are accounted for as
contract costs.
Impairment of certain long-lived assets--Generally, the carrying values of
long-lived assets other than goodwill are reviewed for impairment if events or
changes in the facts and circumstances indicate that their carrying values may
not be recoverable. Any impairment determined is recorded in the current period
and is measured by comparing the fair value of the related asset to its carrying
value.
Derivative financial instruments--The Corporation sometimes uses derivative
financial instruments to manage its exposure to fluctuations in interest rates
and foreign exchange rates. Effective January 1, 2001, the Corporation began to
account for derivative financial instruments in accordance with SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The effect of
adopting SFAS No. 133 was not material to the Corporation's consolidated results
of operations, cash flows or financial position. Under SFAS No. 133, all
derivatives are recorded as either assets or liabilities in the consolidated
balance sheet, and periodically adjusted to fair value. The classification of
gains and losses resulting from changes in the fair values of derivatives is
dependent on the intended use of the derivative and its resulting designation.
Adjustments to reflect changes in fair values of derivatives that are not
considered highly effective hedges are reflected in earnings. Adjustments to
reflect changes in fair values of derivatives that are considered highly
effective hedges are either reflected in earnings and largely offset by
corresponding adjustments related to the fair values of the hedged items, or
reflected in other comprehensive income until the hedged transaction matures and
the entire transaction is recognized in earnings. The change in fair value of
the ineffective portion of a hedge is immediately recognized in earnings.
Interest rate swap agreements are designated as effective hedges of the
fair value of certain existing fixed rate debt instruments. Forward currency
exchange contracts are designated as qualifying hedges of cash flows associated
with firm commitments or specific anticipated transactions. At December 31,
2001, the fair values of interest rate swap agreements and forward currency
exchange contracts outstanding, as well as the amounts of gains and losses
recorded during the year, were not material. The Corporation does not hold or
issue derivative financial instruments for trading purposes.
Stock-based compensation--The Corporation measures compensation cost for
stock-based compensation plans using the intrinsic value method of accounting as
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. The Corporation has adopted
those provisions of SFAS No. 123, "Accounting for Stock-Based Compensation,"
which require disclosure of the pro forma effects on net earnings and earnings
per share as if compensation cost had been recognized based upon the estimated
fair value at the date of grant for options awarded.
Comprehensive income--Comprehensive income (loss) for the Corporation consists
primarily of net earnings (loss), after-tax foreign currency translation
adjustments, after-tax unrealized gains and losses related to hedging activities
and available-for-sale securities, and the after-tax impact of additional
minimum pension liabilities. Income taxes related to components of other
comprehensive income are generally recorded based on an effective tax rate of 39
percent. At December 31, 2001, 2000 and 1999, the accumulated balances of other
comprehensive income related to foreign currency translation adjustments were
not material and, at December 31, 2001, the accumulated balance related to net
unrealized gains and losses from hedging activities was not material. For the
year ended December 31, 2001, other comprehensive income included a net
unrealized gain of $23 million primarily related to the Corporation's
investments in Loral Space & Communications, Ltd. (Loral Space) and New Skies
Satellites, N.V. (New Skies), a reclassification adjustment of $151 million
related to the realization of the loss in value of its investment in Loral Space
in the third quarter of 2001, and an additional minimum pension liability of $33
million related to certain of the Corporation's defined benefit pension plans.
Other comprehensive loss in 2000 consisted primarily of a $129 million
unrealized loss related to the decline in value of the Corporation's investment
in Loral Space.
New accounting pronouncements--The Corporation adopted SFAS No. 142, "Accounting
for Goodwill and Other Intangible Assets," as of January 1, 2002. Among
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other things, the Statement prohibits the amortization of goodwill and sets
forth a new methodology for periodically assessing and, if warranted, recording
impairment of goodwill. The Statement also requires completion of the initial
step of a transitional impairment test within six months of the adoption of SFAS
No. 142 and, if applicable, completion of the final step of the impairment test
by the end of the fiscal year of adoption. In connection with the impairment
provisions of the new rules, the Corporation has completed the initial step of
the goodwill impairment test and has concluded that no adjustment to the balance
of goodwill at the date of adoption is required. In addition, the Corporation
reassessed the estimated remaining useful lives of other intangible assets as
part of its adoption of the Statement. As a result of that review, the estimated
useful life of the intangible asset related to the F-16 fighter aircraft program
has been extended. This change is expected to decrease annual amortization
expense associated with that intangible asset by approximately $30 million on a
pretax basis. If the Statement had been adopted at the beginning of 2001, the
extension of the estimated useful life of that intangible asset and the absence
of goodwill amortization would have increased earnings from continuing
operations before extraordinary item by approximately $240 million ($0.55 per
diluted share).
The Corporation elected to early adopt, effective January 1, 2001, SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets." The new
Statement supercedes previous accounting guidance related to impairment of
long-lived assets and provides a single accounting methodology for the disposal
of long-lived assets, and also supercedes previous guidance with respect to
reporting the effects of the disposal of a business. In connection with the
Corporation's decision to exit its global telecommunications services business
and divest certain of the related business units (see "Note 2--Exit From the
Global Telecommunications Services Business"), the results of operations and
cash flows of certain businesses identified as held for sale, as well as the
impairment and other charges related to the decision to exit these businesses,
are classified as discontinued operations in the Corporation's consolidated
financial statements for all periods presented, and are excluded from business
segment information. Similarly, the assets and liabilities of these businesses
are separately identified in the consolidated financial statements as being held
for sale.
The results of operations and related gains or losses associated with
businesses divested prior to the effective date of the Corporation's adoption of
SFAS No. 144, including the divestitures of the Corporation's Aerospace
Electronics Systems (AES) businesses and Lockheed Martin Control Systems in
2000, have not been reclassified to discontinued operations in accordance with
the Statement.
Effective January 1, 1999, the Corporation adopted the American Institute
of Certified Public Accountants' Statement of Position (SOP) No. 98-5,
"Reporting on the Costs of Start-Up Activities." This SOP requires that, at the
effective date of adoption, costs of start-up activities previously capitalized
be expensed and reported as a cumulative effect of a change in accounting
principle, and further requires that such costs subsequent to adoption be
expensed as incurred. The adoption of SOP No. 98-5 resulted in the recognition
of a cumulative effect adjustment which reduced net earnings for the year ended
December 31, 1999 by $355 million ($0.93 per diluted share). The cumulative
effect adjustment was recorded net of income tax benefits of $227 million, and
was primarily composed of approximately $560 million of costs previously
included in inventories.
Note 2--Exit From the Global Telecommunications Services Business
On December 7, 2001, the Corporation announced that it would exit its
global telecommunications services business as a result of continuing
overcapacity in the telecommunications industry and deteriorating business and
economic conditions in Latin America. In connection with its decision, the
Corporation reassigned certain of the businesses in the Global
Telecommunications segment to other business segments, plans to sell the
remaining operations, has positioned the remaining investments for monetization,
and is eliminating the administrative infrastructure supporting such businesses
and investments. Separately, the Corporation decided not to provide further
funding to Astrolink International, LLC (Astrolink) and, due primarily to
Astrolink's inability to obtain additional funding from other sources, wrote off
its investment in Astrolink (see "Note 9--Investments" for a discussion of the
write-off of
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Astrolink). As a result of these actions, the Global Telecommunications segment
will no longer be reported as a separate business segment.
The Corporation recognized nonrecurring and unusual charges, net of state
income tax benefits, totaling approximately $2.0 billion in the fourth quarter
of 2001 related to these actions. The charges decreased net earnings by
approximately $1.7 billion ($3.98 per diluted share).
The Global Telecommunications segment businesses retained by the
Corporation have been realigned as follows:
o The Systems & Technology line of business and the COMSAT General
telecommunications business unit has been realigned within the Space Systems
segment.
o Enterprise Solutions-U.S., a commercial information technology
business, has been realigned within the Technology Services segment.
The Global Telecommunications segment equity investments positioned for
monetization include Intelsat, Ltd. (Intelsat), Inmarsat Ventures plc
(Inmarsat), New Skies, ACeS International, Ltd. (ACeS), Americom Asia-Pacific,
LLC and Astrolink. These investments are now reported as part of the Corporate
and Other segment.
Following is a discussion which describes the components of the $2.0
billion in charges based on their classification in the Corporation's
consolidated financial statements.
Discontinued Operations
The $2.0 billion in charges recorded in the fourth quarter of 2001 included
charges, net of state income tax benefits, of approximately $1.4 billion related
to certain global telecommunications services businesses held for sale and exit
costs associated with elimination of the administrative infrastructure
supporting the global telecommunications businesses and investments. These
charges, which reduced net earnings for 2001 by $1.3 billion ($3.09 per diluted
share), are included in discontinued operations in the Corporation's statement
of operations in accordance with SFAS No. 144. In addition, the results of
operations of these businesses have been classified as discontinued operations
in the Corporation's consolidated statements of operations for all periods
presented, and excluded from business segment information. Similarly, the assets
and liabilities of these businesses have been separately identified in the
consolidated balance sheet as being held for sale. The Corporation expects to
complete the sale of these businesses by the end of 2002. Depreciation and
amortization expense are no longer being recorded with respect to the assets of
these businesses in accordance with SFAS No. 144. These businesses are recorded
at estimated fair value less cost to sell at December 31, 2001. Changes in the
estimated fair value will be recorded in future periods as determined. The
businesses held for sale are as follows:
o Satellite Services businesses--includes COMSAT Mobile Communications, COMSAT
World Systems and Lockheed Martin Intersputnik. In the first quarter of 2002,
the Corporation completed the sale of COMSAT Mobile Communications. The
transaction is not expected to have a material impact on the
Corporation's consolidated results of operations.
o COMSAT-International (formerly Enterprise Solutions-International)--provides
telecommunications network services in Latin America, primarily Argentina
and Brazil.
Of the $1.4 billion of charges included in discontinued operations,
approximately $1.2 billion related to impairment of goodwill recorded in the
Global Telecommunications segment. The goodwill was recorded in connection with
the Corporation's acquisition of COMSAT as discussed in "Note 3--Acquisitions
and Other Divestiture Activities." The write-down of the goodwill was based on
the relationship of its carrying value to the Corporation's estimated realizable
value. Approximately $170 million of the $1.4 billion related to impairment of
certain long-lived assets employed by foreign businesses held for sale,
primarily COMSAT-International. The remainder of the charges included in
discontinued operations are related to costs associated with infrastructure
reductions, including severance and facilities.
In addition, the Corporation completed the sale of Lockheed Martin IMS
Corporation (IMS), a wholly-owned subsidiary, for $825 million in cash on August
24, 2001. The transaction resulted in a gain, net of state income taxes, of $476
million and increased net earnings by $309 million ($0.71 per diluted share).
The results of IMS' operations for all periods presented, as well as the gain on
the sale, have been reclassified to discontinued operations in accordance with
SFAS No. 144. IMS' assets and liabilities as of December 31, 2000 have been
reclassified as held for sale.
- --------------------------------------------------------------------------------
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Net sales and earnings (loss) before income taxes related to the
discontinued businesses were as follows:
Year ended December 31,
(In millions) 2001 2000 1999
- ------------------------------------------------------------------------
Net sales $ 803 $ 788 $ 531
(Loss) earnings before income taxes:
Results of operations of
discontinued businesses $ (52) $ (46) $ 12
Charges related to discontinued
businesses, net of IMS gain (970) -- --
- ------------------------------------------------------------------------
$ (1,022) $ (46) $ 12
- -------------------------------------------------------------------------
The major classes of assets and liabilities of the discontinued businesses
classified as held for sale and included in the consolidated balance sheet were
as follows:
December 31,
(In millions) 2001 2000
- -----------------------------------------------------------------
Assets
Receivables $ 81 $ 210
Deferred income taxes 149 91
Property, plant and equipment 277 504
Goodwill 84 1,376
Other assets 47 151
- -----------------------------------------------------------------
$ 638 $ 2,332
- -----------------------------------------------------------------
Liabilities
Accounts payable $ 28 $ 78
Customer advances 75 82
Other liabilities 284 307
- -----------------------------------------------------------------
$ 387 $ 467
Other Charges Related to Global Telecommunications
The charges recorded in the fourth quarter also included nonrecurring and
unusual charges, net of state income tax benefits, of approximately $132 million
related to commitments to and impairment in the values of investments in
satellite joint ventures, primarily ACeS and Americom Asia-Pacific, LLC. In
addition, approximately $43 million was recorded for severance and facilities
costs, and impairment of certain fixed assets, associated with the business
units that have been realigned. On a combined basis, these nonrecurring and
unusual charges reduced net earnings for 2001 by $117 million ($0.27 per diluted
share).
Note 3--Acquisitions and Other Divestiture Activities
Business Combination with COMSAT Corporation
In September 1998, the Corporation and COMSAT Corporation (COMSAT)
announced that they had entered into an Agreement and Plan of Merger to combine
the companies in a two-phase transaction. The Corporation completed a cash
tender offer for 49 percent of the outstanding stock of COMSAT on September 18,
1999. The total value of this phase of the transaction was $1.2 billion. The
Corporation accounted for its 49 percent investment in COMSAT under the equity
method of accounting.
On August 3, 2000, the second phase of the transaction was completed. The
total amount recorded related to this phase of the transaction was approximately
$1.3 billion based on the Corporation's issuance of approximately 27.5 million
shares of its common stock at a price of $49 per share. This price per share
represents the average of the price of Lockheed Martin's common stock a few days
before and after the announcement of the transaction in September 1998.
The total purchase price for COMSAT, including transaction costs and
amounts related to Lockheed Martin's assumption of COMSAT stock options, was
approximately $2.6 billion, net of $76 million in cash balances acquired. The
COMSAT transaction was accounted for using the purchase method of accounting,
under which the purchase price was allocated to assets acquired and liabilities
assumed based on their fair values. Included in these allocations were
adjustments totaling approximately $2.1 billion to record investments in equity
securities at fair value and goodwill.
The Corporation consolidated the operations of COMSAT with the results of
operations of Lockheed Martin Global Telecommunications, Inc. (LMGT), a
wholly-owned subsidiary of the Corporation, from August 1, 2000.
Divestiture Activities
In November 2000, the Corporation sold its Aerospace Electronics Systems
(AES) businesses for $1.67 billion in cash (the AES Transaction). The
Corporation recorded a nonrecurring and unusual loss of $598 million related to
the AES Transaction which is included in other income and expenses. The loss
reduced net earnings for 2000 by $878 million ($2.18 per diluted share).
In September 2000, the Corporation sold Lockheed Martin Control Systems
(Control Systems) for $510 million in cash. This transaction resulted in the
recognition of a nonrecurring and unusual gain, net of state income taxes, of
$302 million which is reflected in other income and expenses. The gain increased
net earnings for 2000 by $180 million ($0.45 per diluted share).
- --------------------------------------------------------------------------------
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Also in September 2000, the Corporation sold approximately one-third of its
interest in Inmarsat for $164 million. The investment in Inmarsat was acquired
as part of the merger with COMSAT. As a result of the transaction, the
Corporation's interest in Inmarsat was reduced from approximately 22% to 14%.
The sale of shares in Inmarsat did not impact the Corporation's results of
operations for 2000.
In March 1997, the Corporation repositioned 10 of its non-core business
units as a new independent company, L-3 Communications Holdings, Inc. (L-3). In
1999, the Corporation sold its remaining interest in L-3 in two separate
transactions. On a combined basis, these transactions resulted in a nonrecurring
and unusual gain, net of state income taxes, of $155 million which increased net
earnings by $101 million ($0.26 per diluted share).
In September 1999, the Corporation sold its interest in Airport Group
International Holdings, LLC which resulted in a nonrecurring and unusual gain,
net of state income taxes, of $33 million in other income and expenses. In
October 1999, the Corporation exited its commercial 3D graphics business through
consummation of a series of transactions which resulted in the sale of its
interest in Real 3D, Inc., a majority-owned subsidiary, and a nonrecurring and
unusual gain, net of state income taxes, of $33 million in other income and
expenses. On a combined basis, these transactions increased net earnings by $43
million ($0.11 per diluted share).
Note 4--Restructuring and Other Charges
In the fourth quarter of 1998, the Corporation recorded a nonrecurring and
unusual pretax charge, net of state income tax benefits, of $233 million related
to actions surrounding the decision to fund a timely non-bankruptcy shutdown of
the business of CalComp Technology, Inc. (CalComp), a majority-owned subsidiary.
The financial impacts of actions taken in 1999 to shut down the business were
less than anticipated in the Corporation's plans and estimates and, in the
fourth quarter of 1999, the Corporation reversed approximately 10 percent of the
original charge recorded in 1998. Based on management's assessment of the
remaining actions to be taken as of December 31, 2000 to complete initiatives
contemplated in the Corporation's original plans and estimates, the Corporation
reversed approximately $33 million of the original charge, which increased net
earnings for 2000 by $21 million ($0.05 per diluted share). As of December 31,
2001, the Corporation had substantially completed the shutdown of CalComp's
operations and related initiatives.
Under existing U.S. Government regulations, certain costs incurred for
consolidation actions that can be demonstrated to result in savings in excess of
the cost to implement can be deferred and amortized for government contracting
purposes and included as allowable costs in future pricing of the Corporation's
products and services. Included in the consolidated balance sheet at December
31, 2001 is approximately $260 million of deferred costs related to various
consolidation actions.
Note 5--Earnings Per Share
Basic and diluted per share results for all periods presented were computed
based on the net earnings or loss for the respective periods. The weighted
average number of common shares outstanding during the period was used in the
calculation of basic earnings (loss) per share. In accordance with SFAS No. 128,
"Earnings Per Share," the weighted average number of common shares used in the
calculation of diluted per share amounts is adjusted for the dilutive effects of
stock options based on the treasury stock method only if an entity records
earnings from continuing operations (i.e., before discontinued operations,
extraordinary items and cumulative effects of changes in accounting), as such
adjustments would otherwise be anti-dilutive to earnings per share from
continuing operations.
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The following table sets forth the computations of basic and diluted
earnings (loss) per share:
(In millions, except per share data) 2001 2000 1999
- --------------------------------------------------------------------------
Net earnings (loss):
Earnings (loss) from continuing
operations before extraordinary
items and cumulative effect of
change in accounting $ 79 $ (382) $ 729
Discontinued operations:
Results of operations from
discontinued businesses (62) (42) 8
Charges related to discontinued
businesses, net of IMS gain (1,027) -- --
Extraordinary loss on early
extinguishments of debt (36) (95) --
Cumulative effect of
change in accounting -- -- (355)
- -------------------------------------------------------------------------
Net (loss) earnings for basic
and diluted computations $(1,046) $ (519) $ 382
=========================================================================
Average common shares outstanding:
Average number of common shares
outstanding for basic computations 427.4 400.8 382.3
Dilutive stock options--based
on the treasury stock method 5.1 -- (a) 1.8
- -------------------------------------------------------------------------
Average number of common shares
outstanding for diluted computations 432.5 400.8 (a) 384.1
=========================================================================
Earnings (loss) per share:
Basic:
From continuing operations before
extraordinary items and cumulative
effect of change in accounting $ 0.18 $(0.95) $ 1.91
Discontinued operations:
Results of operations from
discontinued businesses (0.15) (0.10) 0.02
Charges related to discontinued
businesses, net of IMS gain (2.40) -- --
Extraordinary loss on early
extinguishments of debt (0.08) (0.24) --
Cumulative effect of
change in accounting -- -- (0.93)
- -------------------------------------------------------------------------
$ (2.45) $(1.29) $ 1.00
Diluted:
From continuing operations before
extraordinary items and cumulative
effect of change in accounting $ 0.18 $(0.95) $ 1.90
Discontinued operations:
Results of operations from
discontinued businesses (0.14) (0.10) 0.02
Charges related to discontinued
businesses, net of IMS gain (2.38) -- --
Extraordinary loss on early
extinguishments of debt (0.08) (0.24) --
Cumulative effect of
change in accounting -- -- (0.93)
- -------------------------------------------------------------------------
$ (2.42) $(1.29) $ 0.99
=========================================================================
(a) The average number of common shares used in the calculation of the diluted
loss per share for 2000 has not been adjusted for the effects of 2.3
million dilutive stock options.
Note 6--Receivables
(In millions) 2001 2000
- -----------------------------------------------------------------
U.S. Government:
Amounts billed $ 1,107 $ 1,126
Unbilled costs and accrued profits 2,423 2,278
Less customer advances
and progress payments (551) (457)
Commercial and foreign governments:
Amounts billed 583 608
Unbilled costs and accrued profits 502 600
Less customer advances and
progress payments (15) (169)
----------------------------------------------------------------
$ 4,049 $ 3,986
================================================================
Approximately $178 million of the December 31, 2001 unbilled costs and
accrued profits are not expected to be recovered within one year.
Note 7--Inventories
(In millions) 2001 2000
=================================================================
Work in process, commercial
launch vehicles $ 1,205 $ 1,175
Work in process, primarily related
to other long-term contracts and
programs in progress 4,279 3,816
Less customer advances and
progress payments (2,931) (1,864)
- -----------------------------------------------------------------
2,553 3,127
Other inventories 587 678
- -----------------------------------------------------------------
$ 3,140 $ 3,805
=================================================================
Work in process inventories at December 31, 2001 and 2000 related to
commercial launch vehicles include costs for launch vehicles, both under
contract and not under contract, including approximately $135 million and $100
million, respectively, of unamortized deferred costs for launch vehicles not
under contract related to the commercial Atlas and the Evolved Expendable Launch
Vehicle (Atlas V) programs. At December 31, 2001 and 2000, commercial launch
vehicle inventories included amounts advanced to Russian manufacturers,
Khrunichev State Research and Production Space Center and RD AMROSS, a joint
venture between Pratt & Whitney and NPO Energomash, of approximately $730
million and $657 million, respectively, for the manufacture of launch vehicles
and related launch services.
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
Work in process inventories at December 31, 2001 and 2000 related to other
long-term contracts and programs in progress included approximately $45 million
and $50 million, respectively, of unamortized deferred costs for aircraft not
under contract related to the Corporation's C-130J program.
Approximately $1.3 billion of costs included in 2001 inventories, including
approximately $522 million advanced to Russian manufacturers, are not expected
to be recovered within one year.
An analysis of general and administrative costs, including research and
development costs, included in work in process inventories follows:
(In millions) 2001 2000 1999
- ----------------------------------------------------------------------
Beginning of year $ 393 $ 482 $ 669
Incurred during the year 1,818 1,941 2,348
Charged to cost of
sales during the year:
Research and development (607) (647) (822)
Other general
and administrative (1,224) (1,383) (1,713)
- ----------------------------------------------------------------------
End of year $ 380 $ 393 $ 482
- ----------------------------------------------------------------------
In addition, included in cost of sales in 2001, 2000 and 1999 were general
and administrative costs, including research and development costs, of
approximately $679 million, $632 million and $466 million, respectively, related
to commercial programs and activities.
Note 8--Property, Plant and Equipment
(In millions) 2001 2000
- ---------------------------------------------------------------
Land $ 95 $ 170
Buildings 3,117 2,884
Machinery and equipment 4,830 4,823
- ---------------------------------------------------------------
8,042 7,877
Less accumulated depreciation
and amortization (5,051) (4,936)
- ---------------------------------------------------------------
$ 2,991 $ 2,941
- ---------------------------------------------------------------
Note 9--Investments in Equity Securities
(In millions) 2001 2000
- ---------------------------------------------------------------
Equity method investments:
Intelsat, Ltd. $ 1,206 $ 1,201
Satellite ventures 47 503
Other 89 79
- ---------------------------------------------------------------
1,342 1,783
Cost method investments:
Inmarsat Ventures plc 270 270
Loral Space & Communications, Ltd. 137 146
New Skies Satellites, N.V. 117 188
Other 18 46
- ---------------------------------------------------------------
542 650
- ---------------------------------------------------------------
$ 1,884 $ 2,433
- ---------------------------------------------------------------
Satellite ventures includes the Corporation's investments in Space Imaging,
LLC, Astrolink, Americom Asia-Pacific and ACeS. The carrying values of the
Corporation's investments in Loral Space and New Skies are marked-to-market.
The carrying value of the Corporation's 24 percent investment in Intelsat,
which was acquired in connection with the merger with COMSAT, exceeded the
Corporation's share of Intelsat's net assets by approximately $700 million as a
result of purchase accounting adjustments to record the investment at fair
value. Prior to the adoption of SFAS No. 142, this amount was being amortized
ratably over 30 years; however, as discussed in "Note 1--Significant Accounting
Policies," this amount will no longer be amortized beginning January 1, 2002.
The Corporation completed funding of its $400 million investment commitment
to Astrolink, a joint venture in which the Corporation holds a 31 percent
interest, in 2001. Astrolink had received a total of $1.3 billion in equity
funding from its partners which, in addition to the Corporation, include Liberty
Media, TRW and Telespazio. The Astrolink business plan contemplated obtaining
further funding from a combination of strategic equity, public equity and debt
funding sources.
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- --------------------------------------------------------------------------------
In October 2001, the Corporation made the decision and so advised Astrolink
that it did not plan to make any additional investment in the joint venture. In
addition to its equity investment, Lockheed Martin's Space Systems segment had
contracts with Astrolink to manufacture four satellites and provide related
launch services, and LMGT had contracts to perform system development and other
services. Those contracts were terminated due to Astrolink's funding
considerations. In the fourth quarter of 2001, the Corporation recognized a
nonrecurring and unusual charge, net of state income tax benefits, of
approximately $367 million in other income and expenses which reflects the other
than temporary decline in value of its investment in Astrolink based on the
above circumstances. In addition, approximately $20 million of charges were
recorded in cost of sales for certain other costs related to Astrolink. On a
combined basis, these charges reduced net earnings for the year ended December
31, 2001 by approximately $267 million ($0.62 per diluted share).
In the third quarter of 2001, the Corporation recorded a nonrecurring and
unusual charge, net of state income tax benefits, of $361 million in other
income and expenses related to its investment in Loral Space. The charge, which
was recorded due to a decline in the value of the Corporation's investment,
reduced net earnings by $235 million ($0.54 per diluted share). The decline in
value of the investment was assessed to be other than temporary due to the
downward trend in the market price of Loral Space stock and the potential impact
of underlying market and industry conditions on Loral Space's ability to execute
its current business plans.
In the first quarter of 2001, the Corporation recorded a nonrecurring and
unusual charge, net of state income tax benefits, of $100 million in other
income and expenses related to impairment of its investment in Americom
Asia-Pacific, LLC, a joint venture in which the Corporation holds a 50 percent
interest. The charge reduced net earnings for the year ended December 31, 2001
by $65 million ($0.15 per diluted share). The satellite operated by Americom
Asia-Pacific, which serves Southeast Asia, was placed in commercial operation
late in the fourth quarter of 2000. The decline in value of the investment was
assessed to be other than temporary as a result of lower transponder pricing,
lower than expected demand and overall market conditions. The remaining value of
the investment was written off in the fourth quarter of 2001 in connection with
the Corporation's decision to exit the global telecommunications services
business.
In the fourth quarter of 2000, the Corporation recorded a nonrecurring and
unusual charge, net of state income tax benefits, of $117 million related to
impairment of its investment in ACeS due to an other than temporary decline in
the value of the investment. ACeS is a joint venture in which the Corporation
holds a 33 percent interest at December 31, 2001. ACeS operates the Asian
Cellular Satellite System, a geostationary mobile satellite system serving
Southeast Asia which was placed in commercial operation in the fourth quarter of
2000. The spacecraft experienced an anomaly that may reduce the overall capacity
of the system by about 30 to 35 percent. The decline in the value of the
investment was assessed to be other than temporary as a result of the reduced
business prospects due to this anomaly as well as overall market conditions. The
adjustment reduced net earnings by $77 million ($0.19 per share).
Note 10--Debt
The Corporation's long-term debt is primarily in the form of
publicly-issued, fixed-rate notes and debentures, summarized as follows:
Type (Maturity Dates)
(In millions, except Range of
interest rate data) Interest Rates 2001 2000
- --------------------------------------------------------------------
Notes (2002-2022) 6.5-9.0% $ 3,114 $ 5,202
Debentures (2011-2036) 7.0-9.1% 4,198 4,312
Monthly Income
Preferred Securities 8.125% -- 200
ESOP obligations (2002-2004) 8.4% 132 177
Other obligations (2002-2016) 1.0-13.1% 67 56
- --------------------------------------------------------------------
7,511 9,947
Less current maturities (89) (882)
- --------------------------------------------------------------------
$ 7,422 $ 9,065
- --------------------------------------------------------------------
In September 2001, the Corporation redeemed approximately $117 million of
7% debentures ($175 million at face value) due in 2011 which were originally
sold at approximately 54 percent of their principal amount. The debentures were
redeemed at face value, resulting in an extraordinary loss on early
extinguishment of debt, net of $22 million in income tax benefits, of $36
million ($0.08 per diluted share).
- --------------------------------------------------------------------------------
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In July 2001, COMSAT, a wholly-owned subsidiary of the Corporation,
redeemed $200 million in principal amount of the 8.125% Cumulative Monthly
Income Preferred Securities (MIPS) previously issued by a wholly-owned
subsidiary of COMSAT. The MIPS were redeemed at par value of $25 per share plus
accrued and unpaid dividends to the redemption date. The redemption did not
result in an extraordinary gain or loss on the early extinguishment of debt.
Also in 2001, the Corporation repaid approximately $1.26 billion of notes
outstanding which had been issued to a wholly-owned subsidiary of General
Electric Company. The notes would have been due November 17, 2002. The early
repayment of the notes did not result in an extraordinary gain or loss on the
early extinguishment of debt.
In December 2000, the Corporation purchased approximately $1.9 billion in
principal amount of debt securities included in tender offers for six issues of
notes and debentures. The repurchase of the debt securities resulted in an
extraordinary loss on early extinguishment of debt, net of $61 million in income
tax benefits, of $95 million.
In the fourth quarter of 2001, the Corporation entered into interest rate
swaps to swap fixed interest rates on approximately $670 million of its
long-term debt for variable interest rates based on LIBOR. At December 31, 2001,
the fair values of interest rate swap agreements outstanding, as well as the
amounts of gains and losses recorded during the year, were not material.
The registered holders of $300 million of 40 year Debentures issued in 1996
may elect, between March 1 and April 1, 2008, to have their Debentures repaid by
the Corporation on May 1, 2008.
A leveraged employee stock ownership plan (ESOP) incorporated into the
Corporation's salaried savings plan borrowed $500 million through a private
placement of notes in 1989. These notes are being repaid in quarterly
installments over terms ending in 2004. The ESOP note agreement stipulates that,
in the event that the ratings assigned to the Corporation's long-term senior
unsecured debt are below investment grade, holders of the notes may require the
Corporation to purchase the notes and pay accrued interest. These notes are
obligations of the ESOP but are guaranteed by the Corporation and included as
debt in the Corporation's consolidated balance sheet.
At the end of 2001, the Corporation had in place a $1.0 billion 1-year
revolving credit facility and a $1.5 billion 5-year revolving credit facility
(the Credit Facilities). Borrowings under the Credit Facilities would be
unsecured and bear interest at rates based, at the Corporation's option, on the
Eurodollar rate or a bank Base Rate (as defined). Each bank's obligation to make
loans under the Credit Facilities is subject to, among other things, compliance
by the Corporation with various representations, warranties and covenants,
including, but not limited to, covenants limiting the ability of the Corporation
and certain of its subsidiaries to encumber their assets and a covenant not to
exceed a maximum leverage ratio. No borrowings were outstanding under the Credit
Facilities at December 31, 2001.
The Corporation's long-term debt maturities for the five years following
December 31, 2001 are: $89 million in 2002; $780 million in 2003; $142 million
in 2004; $15 million in 2005; $780 million in 2006; and $5,705 million
thereafter.
Certain of the Corporation's other financing agreements contain restrictive
covenants relating to debt, limitations on encumbrances and sale and lease-back
transactions, and provisions which relate to certain changes in control.
The estimated fair values of the Corporation's long-term debt instruments
at December 31, 2001, aggregated approximately $8.2 billion, compared with a
carrying amount of approximately $7.5 billion. The fair values were estimated
based on quoted market prices for those instruments publicly traded. For
privately placed debt, the fair values were estimated based on the quoted market
prices for similar issues, or on current rates offered to the Corporation for
debt with similar remaining maturities. Unless otherwise indicated elsewhere in
the Notes to Consolidated Financial Statements, the carrying values of the
Corporation's other financial instruments approximate their fair values.
In June 2000, the Corporation was notified that Globalstar, L.P.
(Globalstar) failed to repay borrowings of $250 million under a revolving credit
agreement on which Lockheed Martin was a partial guarantor. In connection with
its contractual obligation under the guarantee, on June 30, 2000, the
Corporation paid $207 million to the lending institutions from which Globalstar
had borrowed, which included applicable interest and fees. On that same date,
Loral Space, under a separate indemnification agreement between the Corporation
and Loral Space, paid Lockheed Martin $57 million. The Corporation is entitled
to repayment by Globalstar of the remaining $150 million paid under the
guarantee, but has not as yet reached agreement with respect to the form and
timing of such repayment. In light of the uncertainty of the situation regarding
the
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
amounts due from Globalstar, the Corporation recorded a nonrecurring and unusual
charge in the second quarter of 2000, net of state income tax benefits, of
approximately $141 million in other income and expenses. The charge reduced net
earnings for 2000 by $91 million ($0.23 per diluted share). On February 15,
2002, Globalstar and certain of its affiliates filed a voluntary petition under
Chapter 11 of the U.S. Bankruptcy Code.
Interest payments were $707 million in 2001, $947 million in 2000 and $790
million in 1999.
Note 11--Income Taxes
The provision for federal and foreign income taxes attributable to
continuing operations consisted of the following components:
(In millions) 2001 2000 1999
- -----------------------------------------------------------
Federal income taxes:
Current $ 189 $ 779 $126
Deferred (118) (96) 299
- -----------------------------------------------------------
Total federal income taxes 71 683 425
Foreign income taxes 38 31 34
- -----------------------------------------------------------
Total income taxes provided $ 109 $ 714 $459
- -----------------------------------------------------------
Net provisions for state income taxes are included in general and
administrative expenses, which are primarily allocable to government contracts.
The net state income tax benefit for 2001 was $8 million, and net state income
tax expense was $100 million for 2000 and $22 million for 1999.
The Corporation's effective income tax rate attributable to continuing
operations varied from the statutory federal income tax rate because of the
following differences:
2001 2000 1999
- -------------------------------------------------------------------------
Statutory federal tax rate 35.0% 35.0% 35.0%
Increase (reduction) in tax rate from:
Nondeductible amortization 33.2 23.3 7.7
Revisions to prior years'
estimated liabilities (10.8) 3.8 (6.1)
Divestitures -- 152.0 --
Other, net 0.6 1.0 2.0
- -------------------------------------------------------------------------
58.0% 215.1% 38.6%
- -------------------------------------------------------------------------
The primary components of the Corporation's federal deferred income tax
assets and liabilities were as follows:
(In millions) 2001 2000
- --------------------------------------------------------------
Deferred tax assets related to:
Accumulated post-retirement
benefit obligations $ 534 $ 563
Contract accounting methods 459 393
Accrued compensation and benefits 286 246
Other 326 196
- --------------------------------------------------------------
1,605 1,398
Deferred tax liabilities related to:
Intangible assets 378 409
Prepaid pension asset 637 535
Property, plant and equipment 16 31
- --------------------------------------------------------------
1,031 975
- --------------------------------------------------------------
Net deferred tax assets $ 574 $ 423
- --------------------------------------------------------------
Federal and foreign income tax payments, net of refunds received, were $837
million in 2001, $249 million in 2000 and $530 million in 1999. Included in
these amounts are tax payments related to the Corporation's divestiture
activities. In addition, these amounts include net tax payments (refunds) of
$179 million in 2001, $(16) million in 2000 and $44 million in 1999 related to
discontinued operations.
Note 12--Other Income and Expenses, Net
(In millions) 2001 2000 1999
- ------------------------------------------------------------------------
Equity in earnings (losses) of
equity investees, net $ 68 $ 48 $ 18
Interest income 91 89 33
Gain on sales of surplus real estate 111 28 57
Write-off of investment in Astrolink (367) -- --
Write-down of investment in
Loral Space (361) -- --
Impairment loss related to
Americom Asia-Pacific (100) -- --
Other charges related to the exit
from global telecommunications (73) -- --
Loss related to the AES Transaction -- (598) --
Gain on sale of Control Systems -- 302 --
Charge related to
Globalstar guarantee -- (141) --
Impairment loss on ACeS -- (117) --
Sale of interest in L-3 -- -- 155
Other portfolio shaping activities
and other items (24) (20) 81
- ------------------------------------------------------------------------
$(655) $(409) $344
- ------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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Note 13--Stockholders' Equity and Related Items
Capital stock--At December 31, 2001, the authorized capital of the Corporation
was composed of 1.5 billion shares of common stock (approximately 441 million
shares issued), 50 million shares of series preferred stock (no shares issued),
and 20 million shares of Series A preferred stock (no shares outstanding).
Stock option and award plans--In March 1995, the stockholders approved the
Lockheed Martin 1995 Omnibus Performance Award Plan (the Omnibus Plan). Under
the Omnibus Plan, employees of the Corporation may be granted stock-based
incentive awards, including options to purchase common stock, stock appreciation
rights, restricted stock or other stock-based incentive awards. Employees may
also be granted cash-based incentive awards, such as performance units. These
awards may be granted either individually or in combination with other awards.
The Omnibus Plan requires that options to purchase common stock have an exercise
price of not less than 100 percent of the market value of the underlying stock
on the date of grant. The Omnibus Plan does not impose any minimum vesting
periods on options or other awards. The maximum term of an option or any other
award is 10 years. The Omnibus Plan allows the Corporation to provide for
financing of purchases of its common stock, subject to certain conditions, by
interest-bearing notes payable to the Corporation.
In 2001, 2000 and 1999, a total of 325,000 shares of restricted common
stock (25,000, 125,000 and 175,000 shares, respectively) were awarded under the
Omnibus Plan to certain senior executives of the Corporation. The shares were
recorded based on the market value of the Corporation's common stock on the date
of the award. The award requires the recipients to pay the $1 par value of each
share of stock and provides for payment to be made in cash or in the form of a
recourse note to the Corporation. Recipients are entitled to receive cash
dividends and to vote their respective shares, but are prohibited from selling
or transferring shares prior to vesting. The restricted shares generally vest
over four- to five-year periods from the grant date. The impact of these awards
was not material to stockholders' equity or compensation expense in 2001, 2000
or 1999.
In April 1999, the stockholders approved the Lockheed Martin Directors
Equity Plan (the Directors Plan). Approximately 50 percent of each director's
annual compensation is awarded under the Directors Plan. Directors of the
Corporation may elect to receive such compensation in the form of stock units
which track investment return to changes in value of the Corporation's common
stock with dividends reinvested, options to purchase common stock of the
Corporation, or a combination of the two. The Directors Plan requires that
options to purchase common stock have an exercise price of not less than 100
percent of the market value of the underlying stock on the date of grant. Except
in certain circumstances, options and stock units issued under the Directors
Plan vest on the first anniversary of the grant. The maximum term of an option
is 10 years.
The Omnibus Plan and the Directors Plan, as well as the number of shares of
Lockheed Martin common stock authorized for issuance under these plans, have
been approved by the stockholders of the Corporation. At December 31, 2001, the
number of shares of Lockheed Martin common stock reserved for issuance under
these plans totaled 53 million.
The following table summarizes stock option and restricted stock activity
related to the Corporation's plans during 1999, 2000 and 2001:
Number of Shares Weighted
(In thousands) Average
------------------------------ Exercise
Available for Options Price
Grant Outstanding
- -------------------------------------------------------------------------------
December 31, 1998 21,634 23,047 $36.38
Additional shares reserved 1,000 -- --
Options granted (5,466) 5,466 37.04
Options exercised -- (656) 19.76
Options terminated 565 (567) 42.51
Restricted stock awards (175) -- --
- --------------------------------------------------------------
December 31, 1999 17,558 27,290 36.78
Options granted (8,454) 8,454 19.85
COMSAT options assumed -- 4,263 22.43
Options exercised -- (659) 16.15
Options terminated 755 (766) 33.23
Restricted stock awards (125) -- --
- --------------------------------------------------------------
December 31, 2000 9,734 38,582 31.91
Additional shares reserved 16,000 -- --
Options granted (7,016) 7,016 35.06
Options exercised -- (7,024) 22.61
Options terminated 177 (177) 43.27
Restricted stock awards (25) -- --
- --------------------------------------------------------------
December 31, 2001 18,870 38,397 34.12
- -------------------------------------------------------------------------------
Approximately 27.1 million, 27.9 million and 19.7 million outstanding
options were exercisable by employees at December 31, 2001, 2000 and 1999,
respectively.
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
Information regarding options outstanding at December 31, 2001 follows
(number of options in thousands):
Weighted
Weighted Average
Average Remaining
Range of Number Exercise Contractual
Exercise Prices of Options Price Life
- ----------------------------------------------------------------------------
Options Outstanding:
Less than $20.00 7,301 $17.95 6.3
$20.00-$29.99 6,105 25.97 4.6
$30.00-$39.99 15,581 36.06 7.3
$40.00-$50.00 4,762 45.57 5.1
Greater than $50.00 4,648 52.08 6.1
------
Total 38,397 34.12 6.2
- ----------------------------------------------------------------------------
Options Exercisable:
Less than $20.00 3,895 $17.47
$20.00-$ 29.99 5,285 26.05
$30.00-$ 39.99 8,555 36.87
$40.00-$ 50.00 4,762 45.57
Greater than $50.00 4,648 52.08
------
Total 27,145 36.11
- ----------------------------------------------------------------------------
All stock options granted in 2001, 2000 and 1999 under the Omnibus Plan
have 10-year terms and generally vest over a two-year service period. Exercise
prices of options awarded in those years were equal to the market price of the
stock on the date of grant. Pro forma information regarding net earnings and
earnings per share as required by SFAS No. 123 has been prepared as if the
Corporation had accounted for its employee stock options under the fair value
method. The fair value for these options was estimated at the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions for 2001, 2000 and 1999, respectively: risk-free interest rates of
4.95 percent, 6.61 percent and 4.64 percent; dividend yields of 0.6 percent, 0.8
percent and 2.4 percent; volatility factors related to the expected market price
of the Corporation's common stock of .366, .342 and .247; and a weighted average
expected option life of five years. The weighted average fair value of each
option granted during 2001, 2000 and 1999 was $13.32, $7.62 and $8.53,
respectively.
For purposes of pro forma disclosures, the options' estimated fair values
are amortized to expense over the options' vesting periods. The Corporation's
pro forma information follows:
(In millions, except per share data) 2001 2000 1999
- --------------------------------------------------------------------
Pro forma net (loss) earnings $(1,095) $ (550) $ 351
Pro forma (loss) earnings per share:
Basic $ (2.56) $(1.37) $0.92
Diluted $ (2.53) $(1.37) $0.91
- --------------------------------------------------------------------
Note 14--Post-Retirement Benefit Plans
Defined contribution plans--The Corporation maintains a number of defined
contribution plans which cover substantially all employees, the most significant
of which are the 401(k) plans for salaried employees and hourly employees. Under
the provisions of these 401(k) plans, employees' eligible contributions are
matched by the Corporation at established rates. The Corporation's matching
obligations were $226 million in 2001, $221 million in 2000 and $222 million in
1999.
The Lockheed Martin Corporation Salaried Savings Plan includes an ESOP
which purchased 34.8 million shares of the Corporation's common stock with the
proceeds from a $500 million note issue which is guaranteed by the Corporation.
The Corporation's match consisted of shares of its common stock, which was
partially fulfilled with stock released from the ESOP at approximately 2.4
million shares per year based upon the debt repayment schedule through the year
2004, with the remainder being fulfilled through purchases of common stock from
terminating participants or in the open market, or through newly issued shares
from the Corporation. Interest incurred on the ESOP debt totaled $13 million,
$17 million and $20 million in 2001, 2000 and 1999, respectively. Dividends
received by the ESOP with respect to unallocated shares held are used for debt
service. The ESOP held approximately 47.8 million issued shares of the
Corporation's common stock at December 31, 2001, of which approximately 42.0
million were allocated and 5.8 million were unallocated. The fair value of the
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
unallocated ESOP shares at December 31, 2001 was approximately
$270 million. Unallocated common shares held by the ESOP are considered
outstanding for voting and other Corporate purposes, but excluded from weighted
average outstanding shares in calculating earnings per share. For 2001, 2000 and
1999, the weighted average unallocated ESOP shares excluded in calculating
earnings per share totaled approximately 6.7 million, 9.0 million and 11.3
million common shares, respectively.
Certain plans for hourly employees include non-leveraged ESOPs. The
Corporation's match to these plans was made through cash contributions to the
ESOP trusts which were used, in part, to purchase common stock from terminating
participants and in the open market for allocation to participant accounts.
These ESOP trusts held approximately 3.8 million issued and outstanding shares
of common stock at December 31, 2001.
Dividends paid to the salaried and hourly ESOP trusts on the allocated
shares are paid annually by the ESOP trusts to the participants based upon the
number of shares allocated to each participant.
Defined benefit pension plans, and retiree medical and life insurance
plans--Most employees are covered by defined benefit pension plans, and certain
health care and life insurance benefits are provided to eligible retirees by the
Corporation. The Corporation has made contributions to trusts (including
Voluntary Employees' Beneficiary Association trusts and 401(h) accounts, the
assets of which will be used to pay expenses of certain retiree medical plans)
established to pay future benefits to eligible retirees and dependents. Benefit
obligations as of the end of each year reflect assumptions in effect as of those
dates. Net pension and net retiree medical costs for 2001, 2000 and 1999 were
based on assumptions in effect at the end of the respective preceding years.
The following provides a reconciliation of benefit obligations, plan assets
and funded status of the plans:
Defined Retiree Medical
Benefit and Life
Pension Plans Insurance Plans
------------------- ---------------------
(In millions) 2001 2000 2001 2000
- -------------------------------------------------------------------------------
Change in Benefit Obligations
Benefit obligations at
beginning of year $ 18,524 $ 18,073 $ 2,984 $ 2,706
Service cost 523 517 41 38
Interest cost 1,357 1,372 211 198
Benefits paid (1,223) (1,180) (281) (232)
Amendments 38 5 11 36
Divestitures (3) (689) -- (95)
Actuarial losses 497 423 115 298
Participants' contributions -- 3 44 35
- -------------------------------------------------------------------------------
Benefit obligations
at end of year $ 19,713 $ 18,524 $ 3,125 $ 2,984
===============================================================================
Change in Plan Assets
Fair value of plan assets
at beginning of year $ 22,738 $ 25,064 $ 1,098 $ 1,141
Actual return on plan assets (1,238) (383) (70) (30)
Corporation's contributions 8 46 135 129
Benefits paid (1,223) (1,180) (181) (143)
Participants' contributions -- 3 44 35
Divestitures 15 (812) -- (34)
- -------------------------------------------------------------------------------
Fair value of plan assets
at end of year $ 20,300 $ 22,738 $ 1,026 $ 1,098
===============================================================================
Funded (unfunded)
status of the plans $ 587 $ 4,214 $(2,099) $(1,886)
Unrecognized net
actuarial (gains) losses 1,036 (2,975) 512 233
Unrecognized prior
service cost 538 564 22 6
Unrecognized transition asset (5) (9) -- --
- -------------------------------------------------------------------------------
Net amount recognized $ 2,156 $ 1,794 $(1,565) $(1,647)
===============================================================================
Amounts recognized in the
consolidated balance sheet
consist of:
Prepaid (accrued)
benefit cost $ 2,081 $ 1,794 $(1,565) $(1,647)
Intangible asset 20 -- -- --
Other comprehensive
income related to a
minimum pension
liability 55 -- -- --
- -------------------------------------------------------------------------------
Net amount recognized $ 2,156 $ 1,794 $(1,565) $(1,647)
===============================================================================
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
The net pension cost and the net post-retirement benefit cost related to
the Corporation's plans include the following components:
(In millions) 2001 2000 1999
- -----------------------------------------------------------------------------
Defined Benefit Pension Plans
Service cost $ 523 $ 517 $ 564
Interest cost 1,357 1,372 1,245
Expected return on plan assets (2,177) (2,130) (1,920)
Amortization of prior service cost 64 75 69
Recognized net actuarial gains (117) (143) (43)
Amortization of transition asset (4) (4) (4)
Curtailment loss(a) -- 11 --
- ----------------------------------------------------------------------------
Net pension income $ (354) $ (302) $ (89)
- ----------------------------------------------------------------------------
Retiree Medical and Life Insurance Plans
Service cost $ 41 $ 38 $ 43
Interest cost 211 198 177
Expected return on plan assets (99) (105) (90)
Amortization of prior service cost (5) (12) (12)
Recognized net actuarial
losses (gains) 9 (11) (8)
Curtailment gain(a) -- (87) --
- ----------------------------------------------------------------------------
Net post-retirement cost $ 157 $ 21 $ 110
- ----------------------------------------------------------------------------
(a) Amounts relate primarily to the divestiture of AES and Control Systems in
2000 and are included in the calculation of the gains or losses on the
respective transactions.
The following actuarial assumptions were used to determine the benefit
obligations and the net costs related to the Corporation's defined benefit
pension and post-retirement benefit plans, as appropriate:
2001 2000 1999
- ------------------------------------------------------------------------------
Discount rates 7.25% 7.5% 7.75%
Expected long-term rates of
return on assets 9.5 9.5 9.5
Rates of increase in future
compensation levels 5.5 5.5 5.5
The medical trend rates used in measuring the post-retirement benefit
obligation were 8.2 percent in 2001 and 7.8 percent in 2000, and were assumed to
ultimately decrease to 4.5 percent by the year 2012. An increase or decrease of
one percentage point in the assumed medical trend rates would result in a change
in the benefit obligation of approximately 4.3 percent and (3.8) percent,
respectively, at December 31, 2001, and a change in the 2001 post-retirement
service cost plus interest cost of approximately 4.7 percent and (4.1) percent,
respectively. The medical trend rate for 2002 is 9.1 percent.
The Corporation sponsors nonqualified defined benefit plans to provide
benefits in excess of qualified plan limits. The expense associated with these
plans totaled $47 million in 2001, $43 million in 2000 and $40 million in 1999.
Note 15--Leases
Total rental expense under operating leases was $223 million, $232 million
and $260 million for 2001, 2000 and 1999, respectively.
Future minimum lease commitments at December 31, 2001 for all operating
leases that have a remaining term of more than one year were approximately $855
million ($139 million in 2002, $129 million in 2003, $125 million in 2004, $114
million in 2005, $106 million in 2006 and $242 million in later years). Certain
major plant facilities and equipment are furnished by the U.S. Government under
short-term or cancelable arrangements.
Note 16--Commitments and 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
in-house counsel, the probability is remote that the outcome of these matters
will have a material adverse effect on the Corporation's consolidated results of
operations or financial position. These matters include the following items:
Environmental matters--The Corporation is responding to three
administrative orders issued by the California Regional Water Quality Control
Board (the Regional Board) in connection with the Corporation's former Lockheed
Propulsion Company facilities in Redlands, California. Under the orders, the
Corporation is investigating the impact and potential remediation of regional
groundwater contamination by perchlorates and chlorinated solvents. The Regional
Board has approved the Corporation's plan to maintain public water supplies with
respect to chlorinated solvents during this investigation, and the Corporation
continues to negotiate with local water purveyors to implement this plan, as
well as to address water supply concerns relative to perchlorate contamination.
The Corporation estimates that expenditures required to implement work currently
approved will be approximately $85 million. The Corporation is also coordinating
with the U.S. Air Force, which is working with the aerospace and defense
industry to conduct preliminary studies of the potential health effects of
perchlorate exposure in connection with several sites across the country,
including the Redlands site. The results of these studies are intended to assist
state and federal regulators in setting appropriate action levels for
perchlorates
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
in groundwater, and therefore are intended to assist the Corporation in
determining its ultimate clean-up obligation, if any, with respect to
perchlorates. In January 2002, the State of California reduced its provisional
standard for perchlorate concentration in water from 18 parts per billion (ppb)
to four ppb. This provisional standard may be used by the State in providing
guidelines to water purveyors; however, until such time as it is formally
adopted after a public notice and comment period, it is not a legally
enforceable standard. If formally adopted as a regulation, this change would
lead to increased clean-up costs for the Corporation related to the Redlands
site.
Since 1990, the Corporation has been responding to various consent decrees
and orders relating to soil and regional groundwater contamination in the San
Fernando Valley associated with the Corporation's former operations in Burbank,
California. Among other things, these consent decrees and orders obligate the
Corporation to construct and fund the operations of soil and groundwater
treatment facilities in Burbank and Glendale, California through 2018 and 2012,
respectively; however, responsibility for the long-term operation of these
facilities was assumed by the respective localities in 2001. The Corporation has
been successful in limiting its financial responsibility for these activities to
date to its pro rata share as a result of litigation and settlements with other
potentially responsible parties. In addition, under an agreement reached with
the U.S. Government in 2000, the Corporation will continue to be reimbursed in
an amount equal to approximately 50 percent of future expenditures for certain
remediation activities by the U.S. Government in its capacity as a potentially
responsible party under the Comprehensive Environmental Response, Compensation
and Liability Act (CERCLA). The Corporation estimates that total expenditures
required over the remaining terms of the consent decrees and orders described
above, net of the effects of the agreement, will be approximately $50 million.
The Corporation is involved in proceedings and potential proceedings
relating to environmental matters at other facilities, 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. In addition to the amounts with respect to the Redlands and Burbank
properties and the city of Glendale described above, a liability of
approximately $165 million for the other properties (including current operating
facilities and certain facilities operated in prior years) in which an estimate
of financial exposure can be determined has been recorded.
Under agreements reached with the U.S. Government in 1990 and 2000, 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 potentially responsible parties, are
allowable in establishing the prices of the Corporation's products and services.
As a result, a substantial portion of the expenditures are being 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 environmental
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 recoveries 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 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 remediation of
waste found in Pit 9, located on the Idaho National Engineering and
Environmental Laboratory reservation. The Corporation incurred significant
unanticipated costs and scheduling issues due to complex technical and
contractual matters, which it sought to remedy through submission of a request
for equitable adjustment. To date, the Corporation has been unsuccessful in
reaching any agreements with the DoE on cost recovery or other contract
restructuring matters. In 1998, the management contractor for the project, a
wholly-owned subsidiary of the Corporation, at the DoE's direction, terminated
the Pit 9 contract for default. As a result, the Corporation filed a lawsuit
challenging and seeking to overturn the default termination and recover its
costs. Also in
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
1998, the management contractor, also at the DoE's direction, filed suit against
the Corporation seeking, among other things, recovery of approximately $54
million previously paid to the Corporation under the Pit 9 contract. The
Corporation is defending this action in which discovery has been pending since
August 1999. In January 2001, in the Court of Federal Claims, the DoE filed a
motion for summary judgment seeking to dismiss the Corporation's complaint on
jurisdictional grounds. On October 16, 2001, the Court of Federal Claims granted
the DoE's motion to dismiss, finding that there was no privity of contract
between the Corporation and the United States sufficient to provide the Court
with the jurisdiction over the dispute. The Corporation recently appealed the
Court's decision to the United States Court of Appeals for the Federal Circuit.
The Corporation continues to seek resolution of the Pit 9 dispute through
non-litigation means.
Letters of credit and other matters--The Corporation has entered into standby
letter of credit agreements and other arrangements with financial institutions
primarily relating to the guarantee of future performance on certain contracts.
At December 31, 2001, the Corporation had contingent liabilities on outstanding
letters of credit, guarantees, and other arrangements aggregating approximately
$900 million.
Note 17--Information on Industry Segments and Major Customers
The Corporation operates in four principal business segments. The four
segments include Systems Integration, Space Systems, Aeronautics and Technology
Services. All other activities of the Corporation fall within the Corporate and
Other segment.
Transactions between segments are generally negotiated and accounted for
under terms and conditions that are similar to other government and commercial
contracts; however, these intercompany transactions are eliminated in
consolidation. Other accounting policies of the business segments are the same
as those described in "Note 1--Significant Accounting Policies."
As mentioned previously, Lockheed Martin announced in December 2001 its
decision to exit its global telecommunications services business. In connection
with this decision, the Global Telecommunications segment will no longer be
presented as a separate operating segment. Certain of the businesses previously
included in the segment have been classified as discontinued operations;
therefore, financial information related to such businesses has been excluded
from the segment information presented below for all periods. The remaining
businesses and investments previously included in the Global Telecommunications
segment have been realigned with other business segments as discussed more fully
in "Note 2--Exit From the Global Telecommunications Services Business."
The following segment descriptions and financial data have been adjusted to
reflect elimination of the Corporation's Global Telecommunications segment noted
above for the periods presented. Following is a brief description of the
activities of each business segment:
Systems Integration--Engaged in the design, development, integration and
production of high performance electronic systems for undersea, shipboard, land,
and airborne applications. Major product lines include missiles and fire control
systems; air and theater missile defense systems; surface ship and submarine
combat systems; anti-submarine and undersea warfare systems; avionics and ground
combat vehicle integration; platform integration systems; Command, Control,
Communications, Computers and Intelligence (C4I) systems for naval, airborne and
ground applications; surveillance and reconnaissance systems; air traffic
control systems; and postal automation systems.
Space Systems--Engaged in the design, development, engineering and production of
civil, commercial and military space systems. Major product lines include
spacecraft, space launch vehicles and manned space systems; their supporting
ground systems and services; and strategic fleet ballistic missiles. In addition
to its consolidated business units, the segment has investments in joint
ventures that are principally engaged in businesses which complement and enhance
other activities of the segment.
Aeronautics--Engaged in design, research and development, and production of
combat and air mobility aircraft, surveillance/command systems, reconnaissance
systems, platform systems integration and advanced development programs. Major
products and programs include the F-35 (Joint Strike Fighter), the F-16
multi-role fighter, the F-22 air-superiority fighter, the C-130J tactical
airlift aircraft, and support for the C-5, F-117 and U2 aircraft.
Technology Services--Provides a wide array of management, engineering,
scientific, logistic and information management services to federal agencies and
other customers. Major product lines include e-commerce, enterprise information
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
services, software modernization, information assurance and data center
management primarily for DoD and civil government agencies, and also for
commercial customers; engineering, science and information services for NASA;
aircraft and engine maintenance and modification services; management,
operation, maintenance, training, and logistics support for military and
civilian systems; launch, mission, and analysis services for military,
classified and commercial satellites; and research, development, engineering and
science in support of nuclear weapons stewardship and naval reactor programs.
Corporate and Other--Includes the Corporation's properties line of business,
equity investments, including Intelsat, Inmarsat, Loral Space and New Skies, as
well as various other Corporate activities.
Selected Financial Data by Business Segment
(In millions) 2001 2000 1999
===================================================================
Net sales
Systems Integration $ 9,014 $ 9,647 $ 9,570
Space Systems 6,836 7,339 7,285
Aeronautics 5,355 4,885 5,499
Technology Services 2,763 2,649 2,574
Corporate and Other 22 21 71
- -------------------------------------------------------------------
$ 23,990 $ 24,541 $ 24,999
- -------------------------------------------------------------------
Operating profit (loss)
Systems Integration $ 836 $ 583 $ 880
Space Systems 405 401 506
Aeronautics 416 343 247
Technology Services 130 82 137
Corporate and Other (899) (158) 227
- -------------------------------------------------------------------
$ 888 $ 1,251 $ 1,997
- -------------------------------------------------------------------
Intersegment revenue
Systems Integration $ 235 $ 472 $ 470
Space Systems 80 67 135
Aeronautics 52 78 88
Technology Services 814 746 656
Corporate and Other 77 48 47
- -------------------------------------------------------------------
$ 1,258 $ 1,411 $ 1,396
- -------------------------------------------------------------------
Depreciation and amortization
Systems Integration $ 149 $ 183 $ 223
Space Systems 147 152 165
Aeronautics 84 88 82
Technology Services 22 15 15
Corporate and Other 23 26 29
- -------------------------------------------------------------------
$ 425 $ 464 $ 514
- -------------------------------------------------------------------
(In millions) 2001 2000 1999
===================================================================
Amortization of goodwill and
other intangible assets
Systems Integration $ 220 $ 245 $ 276
Space Systems 56 56 57
Aeronautics 81 81 80
Technology Services 17 18 18
Corporate and Other 24 23 7
- -------------------------------------------------------------------
$ 398 $ 423 $ 438
- -------------------------------------------------------------------
Equity in earnings (losses)
of equity investees
Systems Integration $ (3) $ (16) $ --
Space Systems 51 40 35
Aeronautics -- -- --
Technology Services 10 7 --
Corporate and Other 10 17 (17)
- -------------------------------------------------------------------
$ 68 $ 48 $ 18
- -------------------------------------------------------------------
Nonrecurring and unusual
items included in
operating profit (loss)
Systems Integration $ -- $ (304) $ 13
Space Systems (3) 25 21
Aeronautics -- -- --
Technology Services -- (34) --
Corporate and Other (915) (226) 215
- -------------------------------------------------------------------
$ (918) $ (539) $ 249
- -------------------------------------------------------------------
Expenditures for property,
plant and equipment(a)
Systems Integration $ 190 $ 185 $ 214
Space Systems 144 126 142
Aeronautics 142 89 123
Technology Services 30 15 26
Corporate and Other 39 27 75
- -------------------------------------------------------------------
$ 545 $ 442 $ 580
- -------------------------------------------------------------------
Assets(b)
Systems Integration $ 9,612 $ 9,758 $ 12,209
Space Systems 5,208 6,005 6,146
Aeronautics 3,017 3,173 3,206
Technology Services 1,911 1,588 1,604
Corporate and Other 7,268 7,570 6,489
Assets held for sale 638 2,332 607
- -------------------------------------------------------------------
$ 27,654 $ 30,426 $ 30,261
- -------------------------------------------------------------------
Customer advances and
amounts in excess of
costs incurred
Systems Integration $ 797 $ 899 $ 1,039
Space Systems 1,784 2,087 2,629
Aeronautics 2,406 1,636 899
Technology Services 15 60 40
Corporate and Other -- 15 1
- -------------------------------------------------------------------
$ 5,002 $ 4,697 $ 4,608
===================================================================
(a) Amounts exclude expenditures related to discontinued businesses totaling $74
million, $58 million and $89 million in 2001, 2000 and 1999, respectively.
(b) The Corporation has no significant long-lived assets located in foreign
countries.
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
Net Sales by Customer Category
(In millions) 2001 2000 1999
- -------------------------------------------------------------------
U.S. Government
Systems Integration $ 6,952 $ 6,855 $ 7,017
Space Systems 5,956 5,932 6,069
Aeronautics 3,437 2,784 2,979
Technology Services 2,269 2,120 2,033
Corporate and Other -- -- --
- -------------------------------------------------------------------
$ 18,614 $ 17,691 $ 18,098
- -------------------------------------------------------------------
Foreign governments/(a)(b)/
Systems Integration $ 1,790 $ 2,231 $ 2,125
Space Systems 94 79 188
Aeronautics 1,899 2,061 2,501
Technology Services 104 116 106
Corporate and Other -- 1 --
- -------------------------------------------------------------------
$ 3,887 $ 4,488 $ 4,920
- -------------------------------------------------------------------
Commercial/(b)/
Systems Integration $ 272 $ 561 $ 428
Space Systems 786 1,328 1,028
Aeronautics 19 40 19
Technology Services 390 413 435
Corporate and Other 22 20 71
- -------------------------------------------------------------------
$ 1,489 $ 2,362 $ 1,981
===================================================================
(a) Sales made to foreign governments through the U.S. Government are included
in the foreign governments category above.
(b) Export sales, included in the foreign governments and commercial categories
above, were approximately $4.1 billion, $5.2 billion and $5.7 billion in
2001, 2000 and 1999, respectively.
Note 18--Summary of Quarterly Information (Unaudited)
2001 Quarters
(In millions, except ----------------------------------------------------------------
per share data) First/(a)(c)/ Second/(a)/ Third/(a)(d)/ Fourth(e)
- ---------------------------------------------------------------------------------------------
Net sales $ 4,747 $ 5,688 $ 6,221 $ 7,334
Earnings from operations 350 399 438 356
Earnings (loss) from
continuing operations
before extraordinary item 126 150 (51) (146)
Net earnings (loss) 105 144 213 (1,508)
Diluted earnings (loss) per
share from continuing
operations before
extraordinary item 0.30 0.34 (0.12) (0.34)
Diluted earnings (loss)
per share/(b)/ 0.25 0.33 0.50 (3.49)
2000 Quarters
(In millions, except ----------------------------------------------------------------
per share data) First/(a)(g)/ Second/(a)(h)/ Third/(a)(i)/ Fourth(j)
- ---------------------------------------------------------------------------------------------
Net sales $ 5,435 $ 6,070 $ 5,721 $ 7,315
Earnings from operations 318 431 413 498
Earnings (loss) from
continuing operations
before extraordinary item 59 44 (699) 214
Net earnings (loss) 54 42 (704) 89
Diluted earnings (loss) per
share from continuing
operations before
extraordinary item/(f)/ 0.15 0.11 (1.73) 0.50
Diluted earnings (loss)
per share/(f)/ 0.14 0.11 (1.74) 0.21
(a) Amounts presented above, other than those for "Net earnings (loss)" and
"Diluted earnings (loss) per share," differ from amounts previously
reported on Forms 10-Q for the respective periods due to the
reclassification of the results of operations of certain businesses held
for sale to discontinued operations in the consolidated statements of
operations.
(b) The sum of the diluted earnings (loss) per share amounts for the four
quarters of 2001 do not equal the related amount included in the
consolidated statement of operations for the year ended December 31, 2001
due to the exclusion of the impact of dilutive stock options from the third
quarter calculation of per share amounts.
(c) Net earnings for the first quarter of 2001 included the following
nonrecurring and unusual items: a gain on the sale of surplus real estate
which increased net earnings by $72 million ($0.17 per diluted share); and
an impairment charge related to the Corporation's investment in Americom
Asia-Pacific which reduced net earnings by $65 million ($0.15 per diluted
share).
(d) Net earnings for the third quarter of 2001 included the following
nonrecurring and unusual items: an impairment charge related to the
Corporation's investment in Loral Space which reduced net earnings by $235
million ($0.54 per diluted share); an extraordinary loss on the early
extinguishment of debt which reduced net earnings by $36 million ($0.08 per
diluted share); and divestiture and other portfolio shaping activities
which, on a combined basis, decreased net earnings by $3 million. Net
earnings also includes a gain on the sale of IMS which is included in
discontinued operations and which increased net earnings by $309 million
($0.71 per diluted share).
(e) The net loss for the fourth quarter of 2001 included the following
nonrecurring and unusual items: a write-down of the Corporation's
investment in Astrolink and related costs which increased the net loss by
$267 million ($0.62 per diluted share); and charges related to the
Corporation's exit from its global telecommunications services business
which increased the net loss by $117 million ($0.27 per diluted share). The
net loss also includes other nonrecurring and unusual charges related to
impairment of goodwill and other assets, and other costs associated with
certain global telecommunications businesses held for sale. These charges
are recorded in discontinued operations and increased the net loss by $1.3
billion ($ 3.09 per diluted share).
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(f) The sum of the diluted earnings (loss) per share amounts for the four
quarters of 2000 do not equal the related amounts included in the
consolidated statement of operations for the year ended December 31, 2000
due to the impact of the issuance of 27.5 million shares of the
Corporation's common stock to consummate the merger with COMSAT. In
addition, the quarterly earnings per share impact of individual items
discussed in notes (g) through (j) below may not equal the earnings per
share impact of such items for the year ended December 31, 2000 as
disclosed elsewhere in this Annual Report due to the impact of the issuance
of shares to consummate the merger with COMSAT.
(g) Net earnings for the first quarter of 2000 included gains from sales of
surplus real estate and losses from portfolio shaping activities. On a
combined basis, these nonrecurring and unusual items increased net earnings
for the first quarter by $6 million ($0.02 per diluted share).
(h) Net earnings for the second quarter of 2000 included the following
nonrecurring and unusual items: a charge related to the Corporation's
guarantee of certain indebtedness of Globalstar which reduced net earnings
for the quarter by $91 million ($0.23 per diluted share); a favorable
adjustment of $21 million ($0.05 per diluted share) related to the reversal
of a portion of the previously recorded charge for the shutdown of CalComp.
(i) Net loss for the third quarter of 2000 included the following nonrecurring
and unusual items: an impairment loss related to the Corporation's decision
to sell its AES businesses which reduced net earnings by $980 million
($2.42 per diluted share); a gain from the Corporation's sale of its
Control Systems business which increased net earnings by $180 million
($0.44 per diluted share); and a net loss of $19 million ($0.04 per diluted
share) related to portfolio shaping activities and sales of surplus real
estate.
(j) Net earnings for the fourth quarter of 2000 included the following
nonrecurring and unusual items: an adjustment to reduce the impairment loss
recorded related to the sale of the AES businesses which increased net
earnings by $102 million ($0.24 per diluted share); an impairment charge
related to the Corporation's investment in ACeS which reduced net earnings
by $77 million ($0.18 per diluted share); an extraordinary loss on the
early extinguishment of debt which reduced net earnings by $95 million
($0.23 per diluted share) and portfolio shaping activities and sales of
surplus real estate which, on a combined basis, increased net earnings by
$2 million.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning directors required by this Item 10 is included under
the caption Election of Directors in our definitive Proxy Statement to be filed
pursuant to Regulation 14A no later than March 2002 (the 2002 Proxy Statement),
and that information is incorporated by reference in this Form 10- K.
Information concerning executive officers required by this Item 10 is located
under Part I, Item 4(a) of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is included in the text and tables
under the caption Compensation of Executive Officers in the 2002 Proxy Statement
and that information, except for the information required by Item 402(k) and
402(l) of Regulation S-K, is incorporated by reference in this Form 10-K.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is included under the headings Security
Ownership of Certain Beneficial Owners, Securities Owned by Directors, Nominees
and Named Executive Officers and Voting Securities and Record Date in the 2002
Proxy Statement, and that information is incorporated by reference in this Form
10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) List of Financial Statements filed as part of the Form 10-K.
The following financial statements of Lockheed Martin Corporation and
consolidated subsidiaries are included in Item 8 of this Annual Report
on Form 10-K at the page numbers referenced below:
Page
Consolidated Statement of Operations--
Years ended December 31, 2001, 2000, and 1999 . . . . . . . . . . . . . 51
Consolidated Statement of Cash Flows--
Years ended December 31, 2001, 2000, and 1999 . . . . . . . . . . . . . 52
Consolidated Balance Sheet--
December 31, 2001 and 2000 . . . . . . . . . . . . . . . . . . . . . . 53
Consolidated Statement of Stockholders' Equity--
Years ended December 31, 2001, 2000, and 1999 . . . . . . . . . . . . . 54
Notes to Consolidated Financial Statements--
December 31, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(2) List of Financial Statement Schedules filed as part of this
Form 10-K. All schedules have been omitted because they are
not applicable, not required, or the information has been
otherwise supplied in the financial statements or notes to the
financial statements.
(3) Ernst & Young LLP
The report of Lockheed Martin's independent auditors with
respect to the above-
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referenced financial statements appears on page 50 of this
Form 10-K. The consent of Lockheed Martin's independent
auditors appears as Exhibit 23 of this Annual Report on Form
10-K.
(b) The following reports on Form 8-K were filed during the last quarter of the
period covered by this report:
Lockheed Martin Corporation Current Report on Form 8-K filed
with the Securities and Exchange Commission on December 7,
2001.
During the first quarter of 2002 (up until this report was filed), the
Corporation did not file any current reports on Form 8-K.
(c) Exhibits
(3)(i) Articles of Incorporation.
(a) Articles of Amendment and Restatement of Lockheed
Martin Corporation (formerly Parent Corporation)
filed with the State Department of Assessments and
Taxation of the State of Maryland on February 7,
1995 (incorporated by reference to Exhibit 3.1 to
Lockheed Martin Corporation's Registration Statement
on Form S-4 (No. 33-57645) filed with the Commission
on February 9, 1995).
(ii) Bylaws
(a) Copy of the Bylaws of Lockheed Martin Corporation as
last amended on June 14, 2000 (incorporated by
reference to Exhibit 3 of the Corporation's Quarterly
Report on Form 10-Q for the quarter ended June 30,
2000).
(4) (a) Indenture dated May 16, 1996, between the
Corporation, Lockheed Martin Tactical Systems, Inc.,
and First Trust of Illinois, National Association as
Trustee (incorporated by reference to Exhibit 4 of
the Corporation's filing on Form 8-K on May 16,
1996).
(b) Form of Indenture between the Corporation and U.S.
Bank Trust National Association as Trustee
(incorporated by reference to Exhibit 4(a) of the
Corporation's filing on Form S-3 (No. 333-71409) on
January 29, 1999).
(c) See Exhibits 3(i) and 3(ii).
No other instruments defining the rights of holders of long-term debt are filed
since the total amount of securities authorized under any such instrument does
not exceed 10% of the total assets of the Corporation on a consolidated basis.
The Corporation agrees to furnish a copy of such instruments to the Securities
and Exchange Commission upon request.
(10)* (a) Lockheed Martin Corporation 1995 Omnibus Performance Award
Plan (incorporated by reference to Exhibit 10.36 to Lockheed
Martin Corporation's
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Registration Statement on Form S-4 (No. 33-57645) filed with
the Commission on February 9, 1995).
(b) Lockheed Martin Corporation Directors Deferred Stock Plan, as
amended (incorporated by reference to Exhibit 10(b) to
Lockheed Martin Corporation's Annual Report on Form 10-K for
the year ended December 31, 1998).
(c) Agreement Containing Consent Order, dated December 22, 1994,
among the Corporation, Lockheed Corporation, Martin Marietta
Corporation and the Federal Trade Commission (incorporated by
reference to Exhibit 10.4 to Lockheed Martin Corporation's
Registration Statement on Form S-4 (No. 33-57645) filed with
the Commission on February 9, 1995).
(d) Lockheed Martin Corporation Directors Deferred Compensation
Plan, as amended (incorporated by reference to Exhibit 10(d)
to Lockheed Martin Corporation's Annual Report on Form 10-K
for the year ended December 31, 1998).
(e) Resolutions relating to Lockheed Martin Corporation Financial
Counseling Program for directors, officers, company
presidents, and other key employees, as amended (incorporated
by reference to Exhibit 10(e) to Lockheed Martin Corporation's
Annual Report on Form 10-K for the year ended December 31,
1997).
(f) Martin Marietta Corporation Post-Retirement Death Benefit Plan
for Senior Executives, as amended (incorporated by reference
to Exhibit 10.9 to Lockheed Martin Corporation's Registration
Statement on Form S-4 (No. 33-57645) filed with Commission on
February 9, 1995).
(g) Martin Marietta Corporation 1984 Stock Option Plan for Key
Employees, as amended (incorporated by reference to Exhibit
10.12 to Lockheed Martin Corporation's Registration Statement
on Form S-4 (No. 33-57645) filed with Commission on February
9, 1995).
(h) Martin Marietta Corporation Amended Omnibus Securities Award
Plan, as amended March 25, 1993 (incorporated by reference to
Exhibit 10.13 to Lockheed Martin Corporation's Registration
Statement on Form S-4 (No. 33-57645) filed with Commission on
February 9, 1995).
(i) Martin Marietta Corporation Supplemental Excess Retirement
Plan, as amended (incorporated by reference to Exhibit 10.15
to Lockheed Martin Corporation's Registration Statement on
Form S-4 (No. 33-57645) filed with Commission on February 9,
1995).
(j) Martin Marietta Corporation Directors' Life Insurance Program
(incorporated by reference to Exhibit 10.17 to Lockheed
Martin Corporation's Registration Statement on Form S-4
(No. 33-57645) filed with Commission on February 9, 1995).
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(k) Martin Marietta Corporation Executive Special Early Retirement
Option and Plant Closing Retirement Option Plan (incorporated
by reference to Exhibit 10.18 to Lockheed Martin Corporation's
Registration Statement on Form S-4 (No. 33-57645) filed with
Commission on February 9, 1995).
(l) Martin Marietta Supplementary Pension Plan for Employees of
Transferred GE Operations (incorporated by reference to
Exhibit 10.19 to Lockheed Martin Corporation's Registration
Statement on Form S-4 (No. 33-57645) filed with Commission on
February 9, 1995).
(m) Martin Marietta Corporation Deferred Compensation Plan for
Selected Officers, as amended (incorporated by reference to
Exhibit 10(v) to Lockheed Martin Corporation's Annual Report
on Form 10-K for the year ended December 31, 1997).
(n) Lockheed Corporation 1992 Employee Stock Option Program
(incorporated by reference to the Registration Statement on
Form S-8 (No. 33-49003) of Lockheed Corporation filed with
the Commission on September 11, 1992).
(o) Amendment to Lockheed Corporation 1992 Employee Stock Option
Plan (incorporated by reference to Exhibit 10.22 to Lockheed
Martin Corporation's Registration Statement on Form S-4
(No. 33-57645) filed with the Commission on February 9,
1995).
(p) Lockheed Corporation 1986 Employee Stock Purchase Program, as
amended (incorporated by reference to Exhibit 10.23 to
Lockheed Martin Corporation's Registration Statement on
Form S-4 (No. 33- 57645) filed with the Commission on
February 9, 1995).
(q) Incentive Retirement Benefit Plan for Certain Executives of
Lockheed Corporation, as amended (incorporated by reference to
Exhibit 10.25 to Lockheed Martin Corporation's Registration
Statement on Form S-4 (No. 33-57645) filed with the Commission
on February 9, 1995).
(r) Supplemental Retirement Benefit Plan for Certain Transferred
Employees of Lockheed Corporation, as amended (incorporated by
reference to Exhibit 10.26 to Lockheed Martin Corporation's
Registration Statement on Form S-4 (No. 33-57645) filed with
the Commission on February 9, 1995).
(s) Supplemental Benefit Plan of Lockheed Corporation, as amended
(incorporated by reference to Exhibit 10.27 to Lockheed Martin
Corporation's Registration Statement on Form S-4 (No.
33-57645) filed with the Commission on February 9, 1995).
(t) Lockheed Martin Corporation Supplemental Savings Plan, as
amended and restated (incorporated by reference to Exhibit
10(ee) to Lockheed Martin Corporation's Annual Report on Form
10-K for the year ended December 31, 1997).
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(u) Deferred Compensation Plan for Directors of Lockheed
Corporation, as amended (incorporated by reference to Exhibit
10.30 to Lockheed Martin Corporation's Registration Statement
on Form S-4 (No. 33-57645) filed with the Commission on
February 9, 1995).
(v) Lockheed Corporation Retirement Plan for Directors, as amended
(incorporated by reference to Exhibit 10.31 to Lockheed Martin
Corporation's Registration Statement on Form S-4 (No.
33-57645) filed with the Commission on February 9, 1995).
(w) Trust Agreement, as amended February 3, 1995, between Lockheed
Corporation and First Interstate Bank of California
(incorporated by reference to Exhibit 10.33 to Lockheed Martin
Corporation's Registration Statement on Form S-4 (No.
33-57645) filed with the Commission on February 9, 1995).
(x) Lockheed Corporation Directors' Deferred Compensation Plan
Trust Agreement, as amended (incorporated by reference to
Exhibit 10.34 to Lockheed Martin Corporation's Registration
Statement on Form S-4 (No. 33-57645) filed with the Commission
on February 9, 1995).
(y) Trust Agreement, dated December 22, 1994, between Lockheed
Corporation and J.P. Morgan California with respect to certain
employee benefit plans of Lockheed Corporation (incorporated
by reference to Exhibit 10.35 to Lockheed Martin Corporation's
Registration Statement on Form S-4 (No. 33-57645) filed with
the Commission on February 9, 1995).
(z) Lockheed Martin Corporation Directors Charitable Award Plan
(incorporated by reference to Exhibit 10(oo) to Lockheed
Martin Corporation's Annual Report on Form 10-K for the year
ended December 31, 1996).
(aa) Loral Supplemental Executive Retirement Plan (incorporated by
reference to Exhibit 99.2 of the Schedule 14D-9 filed by Loral
Corporation with the Commission on January 16, 1996).
(bb) Amendment to Lockheed Martin Corporation Supplemental Excess
Retirement Plan (incorporated by reference to Exhibit 10(nnn)
to Lockheed Martin Corporation's Annual Report on Form 10-K
for the year ended December 31, 1996).
(cc) Amendment to Terms of Outstanding Stock Option Relating to
Exercise Period for Employees of Divested Business
(incorporated by reference to Exhibit 10(dd) to Lockheed
Martin Corporation's Annual Report on Form 10-K for the year
ended December 31, 1999).
(dd) Lockheed Martin Corporation Post-Retirement Death Benefit Plan
for Elected Officers, as amended (incorporated by reference to
Exhibit 10(ppp) to Lockheed Martin Corporation's Annual Report
on Form 10-K for the year ended December 31, 1996).
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(ee) Lockheed Martin Corporation Directors Retirement Plan, as
amended (incorporated by reference to Exhibit 10(ff) to
Lockheed Martin Corporation's Annual Report on Form 10-K for
the year ended December 31, 1998).
(ff) Deferred Performance Payment Plan of Lockheed Martin
Corporation Space & Strategic Missiles Sector (incorporated by
reference to Exhibit 10(ooo) to Lockheed Martin Corporation's
Annual Report on Form 10-K for the year ended December 31,
1997).
(gg) Resolutions of Board of Directors of Lockheed Martin
Corporation dated June 27, 1997 amending Lockheed Martin
Non-Qualified Pension Plans (incorporated by reference to
Exhibit 10(ppp) to Lockheed Martin Corporation's Annual Report
on Form 10-K for the year ended December 31, 1997).
(hh) Form of Retention Agreement, including Addendum (incorporated
by reference to Exhibit 10(u) to Lockheed Martin Corporation's
Annual Report on Form 10-K for the year ended December 31,
1997).
(ii) Lockheed Martin Corporation Directors Equity Plan.
(jj) Lockheed Martin Corporation Deferred Management Incentive
Compensation Plan (incorporated by reference to Exhibit 10(ll)
to Lockheed Martin Corporation's Annual Report on Form 10-K
for the year ended December 31, 1998).
(kk) Lockheed Martin Corporation Divested Business Deferred
Management Incentive Compensation Plan (incorporated by
reference to Exhibit 10(mm) to Lockheed Martin Corporation's
Annual Report on Form 10-K for the year ended December 31,
1999).
(ll) Lockheed Martin Corporation Management Incentive Compensation
Plan (incorporated by reference to Exhibit 10.1 to Lockheed
Martin Corporation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2000).
(mm) COMSAT Corporation Non-Employee Directors Stock Plan
(incorporated by reference from Exhibit 10.11 to the Form 10-K
of COMSAT Corporation, SEC File No. 1-4929, for the fiscal
year ended December 31, 1996).
(nn) COMSAT Corporation Directors and Officers Deferred
Compensation Plan (incorporated by reference from Exhibit
10.24 to Form 10-K of COMSAT Corporation, SEC File No. 1-4929,
for the fiscal year ended December 31, 1996).
* Exhibits (10)(a), 10(b) and 10(d) through (10)(nn) constitute management
contracts or compensatory plans or arrangements required to be filed as an
Exhibit to this Form pursuant to Item 14(c) of this Report.
(12) Computation of ratio of earnings to fixed charges for the year ended
December 31, 2001.
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(23) Consent of Ernst & Young LLP, Independent Auditors for Lockheed Martin
Corporation.
(24) Powers of Attorney.
Other material incorporated by reference:
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Date: March 7, 2002 By: /s/ Rajeev Bhalla
--------------------------------
RAJEEV BHALLA
Vice President and Controller
(Chief Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ Vance D. Coffman* Chairman and March 7, 2002
- -------------------- Chief Executive Officer
VANCE D. COFFMAN
/s/ Robert J. Stevens* President and March 7, 2002
- --------------------- Chief Operating Officer and Director
ROBERT J. STEVENS
/s/ Christopher E. Kubasik* Senior Vice President and March 7, 2002
- -------------------------- Chief Financial Officer
CHRISTOPHER E. KUBASIK
Director
- -----------------------
NORMAN R. AUGUSTINE
/s/ Marcus C. Bennett* Director March 7, 2002
- ---------------------
MARCUS C. BENNETT
Director
- --------------------
JAMES F. GIBBONS
/s/ Caleb B. Hurtt* Director March 7, 2002
- ------------------
CALEB B. HURTT
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SIGNATURES TITLE DATE
- ---------- ----- ----
Director
- ---------------------
GWENDOLYN S. KING
/s/ Douglas H. McCorkindale* Director March 7, 2002
- ----------------------------
DOUGLAS H. McCORKINDALE
/s/ Eugene F. Murphy* Director March 7, 2002
- --------------------
EUGENE F. MURPHY
/s/ Frank Savage* Director March 7, 2002
- ----------------
FRANK SAVAGE
/s/ James R. Ukropina* Director March 7, 2002
- ---------------------
JAMES R. UKROPINA
/s/ Douglas C. Yearley* Director March 7, 2002
- ----------------------
DOUGLAS C. YEARLEY
*By: /s/ FRANK H. MENAKER, JR. March 7, 2002
-------------------------
(Frank H. Menaker, Jr., Attorney-in-fact**)
- ---------------------------
** By authority of Powers of Attorney filed with this Annual Report on
Form 10-K.
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